The Little A simple guide to

financing life on Earth

Book of
Investing
in Nature
Global Canopy is an innovative environmental organisation that targets the
market forces destroying tropical forests. Since 2001, we have been testing
Acknowledgements
new approaches to tackling deforestation, and guiding companies, investors,
This publication is supported by
and governments worldwide to think differently about our planet’s forests.

Visit www.globalcanopy.org for more information.

Editors: John Tobin-de la Puente and Andrew W. Mitchell

Executive Editor: Alejandro Delmar
Contributing Editors: Kara Guse, Alqayam Meghji,
Alekhya Mukkavilli, Everett Sanderson
Series Editors: Andrew W. Mitchell and Niki Mardas

Special thanks to the following people who provided background

Case study contributors: Mohamed Bakarr (GEF), Mariana Bellot (UNDP), Julien Calas (Agence
française de développement), Gratien Davasse (Mirova), Thomas Duurland (IDH), Suhel al-Janabi
(GeoMedia), Hartmut Meyer (GIZ), Anders Nordheim, WWF Singapore, Roel Nozeman (ASN Bank),
Midori Paxton (UNDP), Gautier Quéru (Mirova), Massimiliano Riva (UN Joint SDG Fund), Nienke
Stam (IDH), Onno van den Heuvel (UNDP).
The following organisations provided background information, contributed to the text, or supported
the production of this publication: Campaign for Nature, Organisation for Economic Cooperation
and Development (OECD), Forest Trends’ Ecosystem Marketplace, Bloomberg New Energy Finance,
Climate Bonds Initiative.
Please cite this publication as: Tobin-de la Puente, J. and Mitchell, A.W. (eds.), 2021.
The Little Book of Investing in Nature, Global Canopy: Oxford.
information, contributed to the text, or supported the production
of this publication: Helen Burley, Andrew Deutz, Patricia De Pauw,
Katia Karousakis, Zach Knight, Brynne Merkley, Sebastián Molina,
Gleice Lima, Robert-Alexandre Poujade, Andrew Seidl, Suresh Sethi,
Jooris van Toor.
Thanks also to the Steering Committee members: Mariana Bellot
(UNDP), Julien Calas (AFD), Odile Conchou (UNCBD), Paul Chatterton
(WWF), Thomas Duurland (IDH), Giles Kleitz (AFD), Anders Nordheim
(WWF Singapore), Gautier Quéru (Mirova), Nienke Stam (IDH),
Onno van den Heuvel (UNDP).
We are continually aiming to improve The Little Book of Investing
in Nature and your feedback is welcome.

This is the first edition of The Little Book of Investing in Nature. This book was based in part on: Please send comments to info@globalcanopy.org
Parker, C., Cranford, M., Oakes, N. and Leggett, M. 2012. The Little Biodiversity Finance Book.
Third edition. Global Canopy Programme.

© Global Canopy 2021. Published by: Global Canopy, 3 Frewin Chambers, Frewin Court,
Oxford OX1 3HZ, UK.

Designed by Chrys Naselos, Studio Rejane Dal Bello

Descriptions regarding investment products, strategies or securities herein are provided for
information purposes only. They are not intended to constitute an offer, solicitation or advice on
any particular investment product, strategy or security, nor do they contain all of the information
that might be material to an investor.

1
 Elizabeth Maruma Mrema
Ten years ago, The Little Biodiversity Finance Book was launched at the
margins of the 10th meeting of the Conference of the Parties (COP 10)
to the Convention on Biological Diversity in Nagoya, Japan. The meeting
adopted at the same period, the Strategic Plan for Biodiversity 2011–2020.
We have come a long way since then. While we may fail to achieve the
Strategic Plan’s 20 Aichi Biodiversity Targets, some progress has been
made, including on biodiversity finance. Supported by an active and
increasing network of partners, such as the Biodiversity Finance Initiative
of the United Nations Development Programme and others, many countries
made progress in better organising their national resource mobilisation
efforts and in devising and applying innovative financial solutions. Many
governments also managed to increase their biodiversity financing, both
international and domestic. We clearly understand better the complex
interlinkages between climate change and biodiversity loss, and the
resulting opportunities to generate financing co-benefits. Unfortunately,
global biodiversity continues to decline, and we all know that we need
to do more and demand to do better.
The present volume of The Little Book of Investing in Nature provides a
treasure trove of insightful information on how to make progress along
these different dimensions of biodiversity finance. Capturing the
conceptual progress made in the last decade, it provides an almost
encyclopaedic overview of the options available across the spectrum
of financial solutions from different sources. I strongly believe that the
book will provide useful guidance to biodiversity and financial practitioners
and help them in designing effective financing strategies as an integral
part of the implementation of the global biodiversity framework in the
coming decade.
Elizabeth Maruma Mrema
UN Assistant Secretary-General and Executive Secretary
Secretariat of the Convention of the Biological Diversity

This includes financing: while there is a range of specific estimates

of our biodiversity financing needs, based on different assumptions,
methodologies and scenarios, all estimates point to a significant and
persistent biodiversity financing gap for this decade. The coming years
however, will be decisive for the future of our planet’s biodiversity.
COP 15 in China is expected to adopt the post-2020 global biodiversity
framework, setting out crucial global goals and targets to protect and
restore the natural world that we all rely on. Implementation of this
framework will require an unprecedented mobilisation of financial
resources from all sources and, with it, an unprecedented mobilisation
of financial actors as partners in implementation.

Only by investing in nature can we achieve the sustainable and resilient

future we all want. However, we also know that the policy impacts of
COVID-19 are leaving many governments financially stretched. In addition
to prioritising the protection of nature and mobilising the requisite financial
resources, this points to the need to build more resilient economic models,
by improving the efficiency of resource use, by realigning incentives and
redirecting financial streams from biodiversity-harmful to biodiversity-
positive impacts.

2 3
 Rémy Rioux
In 2015, the Paris Agreement charted a new course in the global climate
effort by including, as one of its three overarching objectives, a commitment
to making finance work for climate. It has now become urgent to
acknowledge that we must also make finance work for nature. Figures
show that less than 0.2% of global GDP is channelled to maintain
and preserve ecosystems while half of the world’s GDP is dependent
on nature even as the COVID-19 crisis demonstrates that mistreating
biodiversity threatens both people and the planet.

Therefore, France is determined to put biodiversity high on the world’s

political agenda prior to COP 15. Leading “the fight of the century” –
as President Macron said – requires addressing biodiversity loss and
tackling climate change as intertwined challenges, including from a
financial perspective. Accordingly, the Agence française de développement
has decided that 30% of its climate finance will be nature positive by 2025.
This reflects the rising engagement of public development banks (PDBs)
to adopt nature-based solutions, building on their climate experience.
With projects that represent 10% of global investments worldwide,
PDBs have the means to scale up biodiversity-positive finance with a
transformative impact. At the November 2020 Finance in Common
Summit, the 450 PDBs of the world, signed a joint declaration1 in which
they affirm their awareness of the need for biodiversity financing. In this
endeavor, they “stand ready to help align all financial flows with the future
post-2020 Global Biodiversity Framework to be adopted at the COP 15.”
At the forefront of this engagement, the International Development
Finance Club – which gathers 26 national and regional development
banks from all over the world – has also decided to adopt increasingly
nature-based solutions.

Last but not least, PDBs can work with the private sector to factor in
nature in the way we invest, produce and consume, and demonstrate that
solutions encompassing business and biodiversity protection are possible.
This is also what Finance in Common is about, and I am confident that
The Little Book of Investing in Nature, published on the occasion of the
One Planet Summit taking place on January 11, 2021, will greatly contribute
to showing a way forward compatible with the sustainability of our planet.

Rémy Rioux
Chairman of the International Development Finance
Club (IDFC) & Agence française de développement
(French Development Agency) CEO

1
Finance in Common (2020). Joint Declaration of all Public Development Banks.

4 5
 Philippe Zaouati
Nature has become a hot topic for the sustainable finance sector in
recent years, and now it is moving to the top of the mainstream finance
agenda, attracting the interest of pension funds, insurance companies,
and banks. Like for the climate issue, we are witnessing successive steps:
from awareness to commitments, and from commitments to concrete
actions. But unlike climate action, which took many years to develop
this momentum, there is a clear urgency now and we need to act fast;
much faster than before.

The COVID-19 crisis is a resounding wake-up call which combines

environmental, social, health, and economic issues in one major challenge.
Responding to this challenge will require the building of more resilient,
equal societies, which can live in harmony with nature. Transforming
institutions, companies, and even individual behaviour requires real efforts.
Let us be clear: we will not be able to meet the Sustainable Development
Goals and biodiversity objectives by making marginal adjustments.
A systemic change is required.

So where do we start; how can we move quickly to concrete, transformative

actions? Unlocking the power and agility of the finance sector can play
a catalytic role. To do this we need to address two major bottlenecks in
financial activities: (i) accurately assessing and managing risks, and (ii)
identifying new opportunities. All financial professionals, from commercial
teams to risk management and even accounting departments, need to
integrate the nature lens in their analyses, together with the climate lens.
The impact of financial activities on nature, positive and negative, needs
to be integrated in all decisions made, and then monitored and reported on.

Financial institutions can play a key role in bringing funding, innovation,

and accountability, but they can’t do it alone; transformative change will
require collaboration between public and private entities and civil society.
This Little Book is a great example of such collaboration, aimed at raising
awareness to support concrete actions within a larger systemic change.
We need to re-invent the relationship between society and nature, and
the stakes are too high for us to fail.

Philippe Zaouati
Mirova CEO

6 7
 John Tobin and Andrew Mitchell
When Global Canopy first published The Little Biodiversity Finance Book
in 2010, we could not have foreseen how much attention would ultimately
be devoted to three questions that it alluded to: How much funding does
nature get today? How much funding should it get tomorrow? And how
are we going to get there?
Then, the biodiversity financing gap seemed too big to bridge. At the
time, impact investing was a relatively new concept. The Principles for
Responsible Investment (PRI) had just been crafted. But in 2014, a team
representing Credit Suisse, WWF and McKinsey, proposed a radical solution.
If investing in nature could make a tangible return, the private sector could
help pay for its conservation. The problem was not the lack of money,
but the lack of competitive risk-adjusted returns which at the same
time safeguarded biodiversity and delivered sustainable livelihoods.
As the practice of investing for impact has grown, we have seen an explosion
of interest in the idea of leveraging the tools of finance to address the global
biodiversity crisis. Many have found this to be easier said than done — indeed,
investing in nature for long-term profit, rather than exploiting it for short-term
economic gain, is turning traditional economic models on their heads.
Innovations such as blending private finance with government guarantees
are accelerating biodiversity investment now.
over their family offices, and the trillions of dollars that they manage, those
refocusing on ‘purpose’ and inter-generational benefits may find a safe
haven in investments in nature.
It is our hope that we have built on the strong tradition of Global Canopy’s
Little Book series with this new publication on biodiversity and finance. In
answering the three questions posed above, we offer the most current and
rigorous estimates available and demonstrate the extent to which this field
has evolved in the past decade. For those new to the field, we aim to provide
a simple guide to some of the specific mechanisms for financing biodiversity
conservation currently in use.
Finally, we seek to draw attention to the breadth of options available to
national governments currently negotiating a new set of biodiversity targets
for the 2021–2030 period to replace the Aichi Biodiversity Targets. If there
is one thing that has become entirely clear to us in the process of editing this
book, it is that, unless we fundamentally change the movement of money to
become nature-positive, rather than being nature-negative as it is on balance
today, we will continue to finance ourselves into extinction. This book
discusses how we can begin to make that change.
John Tobin-de la Puente Andrew W. Mitchell
Professor of Practice, Founder and Senior Adviser,
Cornell University Global Canopy

Still, we are in the early stages of the growth of biodiversity finance.

If investment activity is to become a substantial part of the solution to the
biodiversity crisis, a variety of structural obstacles will have to be overcome.
Crucially, ‘numbers for nature’ that allow investors to compare the
environmental performance of different transactions, are lacking. Climate
finance has a ‘2 degrees Celsius’ target and an easily understood currency –
a tonne of CO2. The Convention on Biological Diversity must strive at its next
global summit towards an agreement for nature that is equivalent to the
agreement secured for climate in Paris in 2015, including a clear set of goals.

The rules governing the investment activity of asset managers and financial
advisors need resetting. Today, these rules encourage short-term economic
returns, to the exclusion of any consideration of the collateral environmental
or social damage of their investments. But this represents a disservice to the
clients to whom they purportedly owe fiduciary duties. What use is a pension
that pays out into a world devoid of life? Would altering incentive structures
to reward sustainable outcomes lead financial institutions to make better
investments in nature? As a younger generation of wealthy investors takes

8 9
How does this book help?
As the impacts of human activity on the natural world have
become increasingly clear in recent years, alongside human
dependences on a healthy environment, the conversation has
shifted from “Should we save nature?” to “How do we pay for
it?”. Few in government or business today doubt the inherent
value of nature or the importance of managing it sustainably.
The interest in halting the loss of biodiversity is enormous and is
coming from unexpected quarters. Meeting after international
meeting closes with strongly worded calls to protect nature,
and the dialogue among the public sector, business, and civil
society has never been more active. But once economics rears
its head, then the dialogue becomes muffled, and participants
start shuffling papers and shifting their eyes nervously.
that organises biodiversity financing mechanisms into the
following categories: revenue generation, better delivery,
expenditure realignment, avoidance of future expenditures,
and catalysts. To facilitate comparison of the various available
financing options within each category, the book uses a
set of common criteria that are presented graphically with
icons. A comprehensive biodiversity financing plan is likely
to include options from more than one of the categories.
This book is designed to serve not only the needs of the public
sector, business and civil society actors in developing practical
financing solutions for biodiversity, but also as a survey of the
variety of mechanisms currently in use in biodiversity finance
for those who want to understand how to invest in nature in a
manner that helps protect our biosphere rather than damage it.

The Little Book of Investing in Nature aims to energise that

dialogue by clearly laying out options for financing biodiversity
conservation. While some measures to protect biodiversity
may come at an economic cost, others are likely to generate
strong returns, economic and otherwise. This book presents
evidence that, if a well-considered series of measures to protect
nature is implemented, nature may be able to pay for itself.

As the international community considers how to finance

biodiversity protection for the next decade and beyond, The
Little Book of Investing in Nature aims to help governments,
NGOs, the private sector and others compare existing and future
options for financing conservation in a clear and consistent way.
To do so, this publication introduces an overarching framework

10 11
Contents 15 Understanding
biodiversity
16 What is biodiversity?
21 What is the value of
ecosystem services?
27 The story so far…
30 Forging ahead…
51 Generate 159 Avoid
52 The state of play 160 The state of play
53 A brief history 161 A brief history
54 Criteria 162 Criteria
60 A guide to revenue 166 A guide to avoiding
generation future expenditures
90 Conclusion 182 Conclusion

33 Current scale 99 Deliver 185 Catalyse

of finance 100 The state of play 186 The state of play
101 A brief history 186 A guide to key catalysts
34 Global estimates and 102 Criteria
what has changed
39 Where is biodiversity
106 A guide to better delivery 205 Where do we go
117 Conclusion
funding deployed? from here?
119 Realign
43 The overarching 213 Bibiography
framework 120 The state of play
122 A brief history
45 What is biodiversity 124 Criteria
finance? 128 A guide to expenditure
realignment
156 Conclusion

12 13
 Understanding
biodiversity

1
14 15
 What is biodiversity?
Biodiversity in its broadest sense is the richness of life on Earth. Biodiversity
is defined under the Convention on Biological Diversity (CBD) as “the
variability among living organisms from all sources including, inter alia,
terrestrial, marine and other aquatic ecosystems and the ecological
complexes of which they are part; this includes diversity within species,
between species and of ecosystems.” Biodiversity occurs at all levels –
genetic, species and ecosystem – and it is often best illustrated by
considering the wide variety of plant, animal and microorganism species
that exist across the planet. To date, around 1.8 million different species
have been discovered and documented (Vié et al. 2009), but this number
only scratches the surface; the best working estimate of the total number
of species, documented and undocumented, on Earth is around 8 million,
75% of which are insects (IPBES 2019).
Biodiversity and genetic diversity are on a steady decline. The Living Planet
Index determined an average decline of 68% in animal population sizes
between 1970 and 2016 (WWF 2020) with some species groups and
continents experiencing even greater loss; the Latin American and
Caribbean states experienced a 94% decline in biodiversity during this
period. Estimates on the current species extinction rate range from tens
to hundreds of times higher than the natural extinction rate (IPBES 2019).
In addition to biodiversity, this publication will refer to two additional
related concepts: natural capital and ecosystem services. These concepts
are often incorrectly used interchangeably by conservation stakeholders
and practitioners. Therefore, these concepts are defined here for clarity.
Natural Capital
In general terms, ‘capital’ is defined as the stock of materials that exists
within a system at any given time (Costanza et al. 1997). Some common
forms of capital are financial capital, produced capital, and human capital.
Natural capital, per the Natural Capital Coalition, refers to “the stock of
renewable and non-renewable resources (e.g. plants, animals, air, water,
soils, minerals) that combine to yield a flow of benefits to people” (Natural
Capital Coalition, n.d.). Much as an investor will use financial capital to
generate profits, a stock of trees or population of fish will provide a future
flow of timber or food. Managi and Kumar (2018) have estimated that
between 1992–2014 the value of the Global Natural Capital stocks per
capita declined by nearly 40%.
One of the most important and recent studies on natural capital valuation
is by the Intergovernmental Science-Policy Platform on Biodiversity and
Ecosystem Services (IPBES). In 2019, IPBES warned of the deteriorating
state of natural capital – between USD 235 to 557 billion in crop value is at
16
risk due to insufficient pollination, and around 25% of assessed species
are at risk of extinction within the next decade (IPBES 2019). Similarly,
The Economics of Ecosystems and Biodiversity (TEEB) aims to incorporate
biodiversity valuation with policymaking and business practices. TEEB
recommends that businesses recognize all dependencies and impacts on
biodiversity to a) identify risks and b) advertise the sustainability of their
products/services to consumers (TEEB 2010).
Ecosystem Services
Biodiversity, healthy ecosystems, and the survival of species all have
intrinsic value, but their instrumental value to humans is provided through
the products and services we obtain from ecosystems and is best described
using the term “ecosystem services”. Biodiversity loss compromises the
delivery of fundamental ecosystem services like pollination, and the global
loss of all pollinator species would lead to a drop in annual agricultural
output of an estimated USD 217 billion annually (Helmholtz 2008).
Like produced capital, such as a water treatment facility that improves
water quality, natural capital provides a vital flow of ecosystem services.
Ecosystem services are functions of an ecosystem that directly or indirectly
benefit human wellbeing (Daly and Farley, 2004; Voldoire and Royer 2004).
Specifically, ecosystem services include both portions of the natural capital
itself, such as timber or fish, that are harvested from ecosystems as well as
the flows of services, such as watershed protection or climate regulation,
that can be derived from and rely on stocks of natural capital.
Biodiversity
Biologically diverse ecosystems provide a greater flow of ecosystem
services than non-diverse systems (Hooper et al. 2005, Flombaum and Sala
2008). The provision of finance to support biologically diverse ecosystems
– or alternatively to support the biodiversity of a stock of natural capital –
therefore ensures the reliable provision of ecosystem services from the
world’s stocks of natural capital. This, by extension, ensures that the stock
of natural capital and the services they provide are more resilient to shocks
and changing physical environments – a necessity in the face of widespread
impacts of climate change (World Bank 2020).
Conversely, investments in the provision of ecosystem services alone could
have a negative impact on the provision and sustainability of the flow of
other ecosystem services into the future. Where human intervention in
an ecosystem aims to maximize provision of a service, it can often have
a negative effect on biodiversity, leaving the system less resilient and
lowering the provision of other services. For example, reforestation
replacing natural forest with monoculture plantations provides an
ecosystem good but decreases the biodiversity.
17
Learn more
The value of forests
Forests occupy about 30% of the Earth’s surface
but support over 80% of the world’s terrestrial
biodiversity, which underpins vital ecosystem
services in climate, water, food and energy
security as well as human health from local to
global scales (UNFF 2018). These services have
global benefits, such as mitigating carbon
emissions, but also local ones – over 1.6 billion
people are dependent on forest services with
300–350 million depending entirely on forests
for shelter and subsistence. Tropical forests in
particular are extremely biodiverse. In these
forests, more than 480 tree species can occupy
a single hectare, and they house up to 50% of
terrestrial biodiversity, 70–90% of which lives
directly within or on trees (Butler 2019).
From 1990 to 2016, the world lost over 1.3 million
square kilometres of forests, an area larger than
South Africa (World Bank 2016). Commercial
agriculture is responsible for over 70% of
deforestation due to demand for palm oil,
soy, timber and cattle (Lawson 2014). Private
finance can help mitigate this trend through
zero-deforestation investments and sustainable
supply chain practices that promote habitat
protection while delivering positive financial
results. The Global Impact Investing Network’s
(GIIN) timber benchmark reported in 2019 that
18 sustainable timber impact funds had net
returns of 8.6% or higher compared with the
average 4.2% returns delivered by conventional
forestry funds (GIIN 2019). Forest regulations
via forest management plans (FMPs) for logging
concessions have also been successful, for
example in the Congo Basin, where Forest
Stewardship Council certification was used.
FMP areas within the Congo Basin had 74% less
deforestation between 2000 and 2010 compared
with non-FMP areas in the same region (Tritsch
et al. 2020).
18
Climate Security
Tropical rainforests have a double-cooling effect
on the climate. Standing forests, without any
intervention by man, sequester vast quantities
of carbon dioxide (CO2) out of the atmosphere
acting as a ‘carbon sink’. This service removes
about 15% of human CO2 emissions from the
atmosphere every year, equivalent to around 1
tonne (or metric ton) of carbon dioxide per
hectare per year (Lewis et al. 2009; IPCC 2007).
Instead of rewarding this service, however, we
are destroying it. Tropical deforestation is turning
these forests from carbon sinks to carbon
emitters, accounting for around 10% of our global
greenhouse gas emissions, the second-largest
source of CO2 emissions behind fossil fuel
combustion (UNFF 2018). Tropical forests also
account for one third of our planet’s ability to
evaporate water from land into the atmosphere,
cooling the Earth’s surface and creating clouds
that reflect sunlight back out to space (Malhi
2011). The recycling of water vapour by forests
back into air currents also helps to maintain
rainfall regimes over vast areas. For example,
much of the rainfall in the Andes that feeds
glaciers and high-altitude populations has
been recycled over lowland Amazonian forests
(Poveda et al. 2008).
Water Security
Over 90% of the world’s cities and 75% of
accessible freshwater sources depend on
forested watersheds for clean water (McDonald
and Shemie 2014; Millennium Ecosystem
Assessment 2005). Forests act as a type
of natural infrastructure, or naturally built
infrastructure, that filters out sediment
and nutrient pollution from bodies of water.
Deforestation therefore increases the costs
needed to sanitate water.
Food and Health Security
Forests underpin food security in three ways:
providing food to local and indigenous
communities, enabling products that people sell
to purchase food, and ensuring the environment
is suitable for many agricultural practices
(Pimentel 1997). Forests provide a diversity of
nutrient-rich food for rural people and act as a
safety net in times of drought or food shortage
(Arnold et al. 2011). Small-scale farmers often
depend on the ability of forests to recycle
nutrients and prevent soil erosion. At regional
and continental scales, forests help to recycle
water vapour that falls as rain in agricultural
areas far from the forest border. In Amazonia,
winds carry moisture recycled by the forest in
‘flying rivers’ down to the south of Brazil and
beyond, supporting agricultural production in
the South American breadbasket (Vera et al.
2006; Marengo et al. 2004).
As well as providing a sustainable source of fresh
food, forests are an essential source of wild-
harvested medicines for both local communities
and global pharmaceutical companies. Trade
in medicines and plants derived from tropical
rainforests is estimated to be around USD 108
billion per year (Simula 1999). Undisturbed
tropical forests can also have a moderating
effect on infectious diseases: 40% of the world’s
population lives in malaria-infested regions and
heavily deforested areas can see up to a 300-fold
increase in the risk of malaria infection compared
with areas of intact forest (MacDonald and
Mordecai 2019). The commercial trade in
bushmeat is also increasing human exposure to
new diseases that are carried by wildlife. Efforts
to conserve areas of high biodiversity can reduce
the likelihood of diseases such as SARS (Jones
et al. 2008) and, more recently, COVID-19 being
transmitted from wildlife to humans.
Energy Security
Tropical forests support energy security at the
local, regional and global levels. More than 2
billion people rely on timber as their primary
source of fuel for cooking, heating and other
energy needs (IPBES 2019). Currently, however,
fuelwood collection is a major driver of
deforestation, particularly in Africa and Southeast
Asia (Griscom et al. 2009). Forests are also
essential to the production of hydroelectricity
through the regulation of water flow and the
reduction of sedimentation in rivers at regional
scales. For example, given that over two thirds
of Brazil’s electricity supply is generated through
hydropower, any changes in forest cover – which
would affect rainfall patterns, surface run-off and
sedimentation of dams – severely threaten the
country’s energy security (MacDonald 2016).
Livelihood Security
More than a billion of the world‘s poor depend on
forests for some part of their livelihoods and food
security, and around 60 million indigenous
people depend almost entirely on forests for their
survival (World Bank 2004). About 38 million
square kilometres in 87 countries, or about 40%
of all terrestrial protected areas, is managed by
indigenous people, highlighting both indigenous
people’s role in biodiversity protection and their
dependence on these protected areas (Garnett
et al. 2018). Also, 12% of the population in
low-income nations lives within optimal tropical
reforestation areas (Erbaugh et al. 2020).
Critically, maintaining forests is a long-term
process that requires an understanding of the
effects of forest loss. A study in 2020 confirmed
that time lags between livelihood impacts and
biodiversity loss effects from deforestation can
extend to up to fifty years (Sugden 2020).
19
 What is the value of ecosystem services?
Estimates by Costanza et al. (2014) of the global value of ecosystem
services in 2011 (USD 125–145 trillion) represent more than 150% of global
gross domestic product (GDP). These valuations focused on a series of
biomes that provide a broad range of essential ecosystem services to
humans. Previous valuations estimated the contributions of specific
biomes. Groot et al., for example, estimated that an average hectare of
open ocean provides USD 490 per year in ecosystem services, while an
average hectare of coral reefs provides USD 50,000 annually in ecosystem
services (Groot et al. 2012).

According to the World Economic Forum, USD 44 trillion of economic value,

or over half of the world’s GDP, is moderately or highly dependent on nature,
and therefore currently at risk as a result of biodiversity loss and ecosystem
degradation (WEF and AlphaBeta 2020). Some countries have a higher
dependency on nature than others – India and Indonesia, for example, derive
a third of their GDP from sectors that are highly dependent on nature.
According to Swiss Re Institute’s Biodiversity and Ecosystem Services (BES)
Index, this may lead to severe economic distress as a fifth of all countries,
both developing and advanced economies, have more than 30% of their
territory at risk of ecosystem collapse due to a decline in biodiversity.
Countries with highly fragile ecosystems and high dependence on
agricultural sectors, such as Kenya, Nigeria and Pakistan, are particularly at
risk (Retsa et al. 2020). Despite our reliance on ecosystem services, humans
continue degrading biodiversity at alarming rates, resulting in a substantial
and largely irreversible loss in biodiversity (Sukhdev 2008). The loss of
ecosystem services due to land use alone from 1997–2011 is estimated to
be in the range of USD 4.3–20.2 trillion per year (Constanza et al. 2014).

20 21
Learn more
Global biodiversity
conservation
funding needs
Global Protected Areas
Previous policy efforts and estimates of funding
needs for global biodiversity conservation have
primarily focused on supporting the management
of protected areas to prevent biodiversity loss.
Protected areas preserve existing biodiversity
by controlling or eliminating human impacts
on terrestrial and marine habitats. The current
global protected area network, which contains
16% of terrestrial habitat and 7.4% of the oceans
is estimated to only receive USD 24.3 billion
annually (Waldron et al. 2020) – roughly one
third of what it needs to be effectively managed.
These critical funding shortfalls represent a key
obstacle to effectively increasing and managing
the global protected areas network and
addressing international biodiversity protection
goals. The CBD 2030, draft Action Target A2
recommends that “By 2030, [countries] protect
and conserve through a well-connected and
effective system of protected areas and other
effective area-based conservation measures at
least 30 percent of the planet with the focus on
areas particularly important for biodiversity.”
Waldron et al. (2020) analyse the economic
implications and financial cost-benefit of
implementing such a network covering 30% of
global terrestrial and marine protected area by
2030 and proposes a suite of six scenarios, with
an average annual investment of USD 140 billion,
for achieving this target. McKinsey estimates that
increasing the global protected area coverage
– by creating or safeguarding protected areas
through conservation efforts – would give
benefits of USD 290–470 billion per year. It
would also create 400,000 to 650,000 jobs
22
in conservation management, 30 million jobs in
ecotourism and sustainable fishing, and reduce
annual CO2 emissions by 0.9–2.6 gigatonnes
annually (Claes et al. 2020).
In this book, the lower estimate for future global
protected area needs is based on the Waldron
et al. (2020) scenario, which allows for a
compromise between biodiversity protection
and productive landscapes. In turn, the upper
estimate is that of the scenario that prioritises
broader ecosystem integrity and viability. The
annual cost of expanding the global protected
area network to 30% of all terrestrial and marine
ecosystems is USD 149–192 billion per year
(Deutz et al. 2020).
Beyond Protected Areas
Global protected areas play a key role in
preventing biodiversity loss; however, without
further conservation measures they will not be
sufficient to ensure the long-term sustainability
of the Earth’s biosphere. For instance, only 10% of
existing protected areas are ‘structurally intact’
– that is, adequately protected from the negative
influence of human activities such as agriculture,
mining, construction and other sectors (Ward et
al. 2020). Urban areas are expected to expand
by 1.2 million km2, an area equivalent to the size
of South Africa, by 2030. This expansion could
result in the conversion of some 290,000 km2
of natural habitat, potentially degrading as much
as 40% of strictly protected areas globally and
further endangering 13% of the world’s vertebrates
(Seto et al. 2012; McDonald et al. 2018).
Agricultural croplands and rangelands represent
the biggest challenge to biodiversity, and
comprise 55–69% of the total global biodiversity
conservation funding needs (Deutz et al. 2020).
Land-use change is considered one of the largest
drivers of global biodiversity loss and ecosystem
degradation, with agricultural expansion the
most common form of land-use change since
1970 (IPBES 2019). Agricultural land-use change
is not only driven by the growing need for food
and income, but also by inefficient production, invasive alien species on local biodiversity and
distribution and use of food, much of which is support green urban transformation by measures
wasted between the farm and the table. Many of such as controlling water pollution and protecting
these unsustainable agricultural practices occur biodiversity in urban areas.
near or within protected areas.
Total global biodiversity conservation funding
As a result, a comprehensive approach to needs are estimated to be USD 722–967 billion
biodiversity conservation is needed: one that per year by 2030 (Deutz et al. 2020). Table 1
includes direct biodiversity investments through and Figure 1 show that about 76% of the annual
protected areas but also considers the need funding needed to halt and reverse global
for mainstreaming biodiversity conservation, in biodiversity loss relates to the need to
order to better manage economically productive mainstream biodiversity conservation. This
landscapes and seascapes to maintain includes better management of economically
biodiversity integrity and key ecosystem services. productive landscapes and seascapes, tighter
This comprehensive approach must also control of invasive species and reducing the
effectively manage the negative impacts of impacts of rapid urbanisation on biodiversity.
Table 1. Global annual biodiversity conservation funding needs
Funding Needs Target Annual
(in billion USD)
A. Dedicated biodiversity conservation funding needs
Protected Expand the global protected area network USD 149–192
areas to 30% of all terrestrial and marine ecosystems
Coastal Global conservation and restoration of critical USD 27–37
ecosystems coastal ecosystems including mangroves,
seagrass, saltmarshes, and oyster reefs
B. Mainstream biodiversity conservation funding needs
Sustainable Global sustainable management of agricultural USD 438–580
management lands (cropland and rangelands), forests,
of productive and fisheries
landscapes
and seascapes
Invasive Global invasive species management USD 36–84
species
Urban environments Biodiversity conservation in urban environments USD 72.6–73.2
and reducing water pollution
Total: USD 722–967
Source: Deutz et al., 2020
23
Global biodiversity funding Learn more increase in data on the geographic and financial

What are payments

scope of PES, there is very little data on the
needs by 2030 effectiveness of PES from an economic, social

for ecosystem
or ecological point of view.

services (PES)?
Dedicated biodiversity
conservation needs Payments for ecosystem services (PES) is one
176–230 USD bn of the most commonly used mechanisms to
generate revenue for biodiversity conservation.
PES schemes provide benefits to landowners
149–192 Protected areas
who preserve ecosystem services (ES) to
disincentivise them from using the land for
different purposes, such as deforestation. They
are used to incentivise land users to properly
manage and conserve their natural environment,
27–37 Coastal ecoystems thus ensuring the flow of ecosystem services
(Pagiola and Platais 2002).
Mainstream biodiversity
conservation Defining PES
546–737 USD bn PES was defined by Wunder (2005) as
“A voluntary transaction where a well-defined
ecosystem service is being bought by an ES buyer
from an ES provider if and only if the ES provider
secures ES provision (conditionality).” The three
315–420 Sustainable croplands broad categories are user-financed, government-
financed and compliance PES (Salzman et al.
2018). User-financed PES occurs when the direct
beneficiaries of ecosystem services, such as a
company or an individual, give compensation
to landowners. Government-financed PES
occurs when third parties on behalf of the
direct beneficiaries, such as a government, offer
compensation. Compliance PES is when parties
81 Sustainable rangelands dealing with a regulatory fine or restriction satisfy
their regulations by compensating third-party
actors to maintain ecosystem services.
73 Biodiversity in
urban environments
PES is not a single type of policy or intervention,
Invasive species
but a spectrum of arrangements with varying
36–84
management degrees ecosystem commodification, differing
importance of financial incentives and a range
Figure 1. 23–47 of indirect and direct transfers of incentives
Sustainable fisheries
Global annual biodiversity
conservation funding (Muradian et al. 2010). Despite the generous
19–32 Sustainable forestry
needs (upper estimate).
PES Today
In the past two decades, there has been a
significant increase in PES with over 550 active
programmes around the globe and an estimated
USD 48 billion in annual transactions (Salzman et
al. 2018; OECD 2019a). Concerning area-specific
PES, watershed PES was valued at about USD
24 billion in 2015, biodiversity/habitat PES was
valued at USD 2.5–8.4 billion in 2016, and forest
and land-carbon use PES was about USD 8.9
billion in both 2014 and 2016. However, there
is still a lack of data on how PES has changed
over time as there is no international standard
in reporting or implementing PES. Furthermore,
ecosystem services are often not well defined;
conservation of habitat is considered a proxy for
ecosystem services provision and there is often
little differentiation between payments for
ecosystem services and payments for biodiversity.
Revenue from PES is often invested in natural
infrastructure, which refers to a connected
network of land and water bodies that deliver
ecosystem services to human populations
(Deutz et al. 2020). These investments prevent
costs associated with building grey infrastructure
to carry out tasks that are already performed by
natural infrastructure (see chapters 4 and 7).
Going forward
No matter how PES is defined, it is important
to understand how it operates as a financial
mechanism for biodiversity conservation and
ecosystem service provision. PES schemes
require a way to generate revenue, a form
of institutional arrangement to transfer and
manage these funds and a mechanism to deliver
finance. The term ‘PES’, however, is often used
to describe all three parts of the financing
mechanism, when it more precisely refers to

24 25
the payment or incentive used as a delivery
mechanism. For example, Costa Rica’s national
programme generated revenue from a variety
of mechanisms including a tax, managed funds
through a central national institution, and
delivered finance through conditional, financial
incentives. The national programme incorporates
all three components, but the actual payments
for ecosystem services are only the final delivery
component of this overall process.
PES for biodiversity effectively creates incentives
for biodiversity protection, as payments are made
in exchange for the sustainable land management
needed to maintain healthy ecosystems.
Whether used as a revenue generation or delivery
mechanism, the value of PES programmes derives
from the fact that they can be used to channel
much needed funding to high-priority ecosystem
services, such as those provided by natural
infrastructure assets or nature-based climate
solutions. Natural infrastructure, as described
here, refers to any ecosystem that provides
services similar to and/or more efficient than
man-made infrastructural assets. A common
example is riparian forests, which can offer water
filtration services. Nature-based climate solutions
are solutions that use natural assets to capitalise
on climate mitigation ecosystem services, such
as forests or healthy soils.
26
The story so far...
Three of the most important global environmental treaties originated at
the 1992 Rio Earth Summit: the United Nations Convention to Combat
Desertification (UNCCD), the United Nations Framework Convention
on Climate Change (UNFCCC) and the United Nations Convention on
Biological Diversity (CBD). The CBD, a global treaty for the conservation
and sustainable use of biodiversity, represents the most ambitious attempt
so far by the international community to address the impacts of habitat
transformation and fragmentation at a global scale. It has three main
objectives: the conservation of biodiversity, the sustainable use of its
components, and the fair and equitable sharing of benefits arising out
of the use of genetic resources.
At the 10th meeting of the Conference of the Parties to the CBD (COP 10)
in Japan in 2010, the parties agreed to the Aichi Biodiversity Targets as
a reaction to the accelerating pace of biodiversity destruction and the
growing concern over what has come to be known as the ‘sixth extinction’
(UNEP and CBD 2011). A total of 20 global biodiversity targets were
agreed, organised under five strategic goals: addressing the underlying
causes of biodiversity loss, reducing the pressures on biodiversity,
safeguarding biodiversity at all levels, enhancing the benefits provided
by biodiversity, and providing for capacity building. The targets were
to be implemented primarily at the national or subnational levels with
supporting action at the regional and global scales. In 2015, the parties
to the CBD agreed to align global biodiversity target implementation to
the newly agreed Sustainable Development Goals (SDGs)..
Notwithstanding these efforts, the international community has fallen
short of all of its targets on biodiversity protection (including the Aichi
Biodiversity Targets and, so far, the biodiversity-related SDGs), and in most
cases dramatically so (CBD 2020). In particular, the Aichi Biodiversity
Targets were criticised for their ambiguity, lack of financing, limited
political will to ensure implementation, and failure to address entrenched
practices of individuals and corporations that may negatively impact
biodiversity (Butchart et al. 2016).
27
Learn more Targets and just 10% of signatories both were on Particularly significant to this book is Target 20, The indicators follow the pressure-state-response

Aichi Biodiversity Targets

What are the Aichi Biodiversity Targets?
The CBD COP 10 in Nagoya, Aichi Prefecture,
Japan, created the Strategic Plan for Biodiversity
2011–2020. This was adopted by the 193
signatories to the CBD as a reference for future
biodiversity conservation and policy. It included
the Aichi Biodiversity Targets, which consist of
five strategic goals and 20 targets (UNEP and
CBD 2011).
• Strategic Goal A: Address the underlying
causes of biodiversity loss by mainstreaming
biodiversity across government and society.
• Strategic Goal B: Reduce the direct
pressures on biodiversity and promote
track to meet national targets and had targets
well aligned with the Aichi Biodiversity Targets.
In contrast, 51% of signatories are not achieving
national targets at a sufficient rate, 11% showed
no progress and 1% were moving away from
their targets.
One of the primary difficulties in tracking progress
was incomparable data between geographical
regions and extremely high regional variability.
For example, Target 5 aimed to halve the rate of
loss of forests. There was significant progress in
reducing the rate of tropical forest deforestation,
but there was little progress in all other forest
ecosystems, leading the CBD to conclude that
Target 5 had insufficient progress.
The targets that did have partial progress were:
which stated that by 2020 “mobilization of
financial resources … should increase
substantially”. Target 20 also established that
additional funding would likely be necessary
for countries with fewer resources that were
biodiversity rich, such as many of the small island
nations of the world, but progress on this goal
has been just as limited as the others.
Few countries have met the goals set out by the
CBD, with only 9% of countries reporting that they
were on track to meet the 2020 target in 2019,
although many countries did not report data.
Figure 2. Assessment
 of progress towards national targets and alignment to the Aichi Biodiversity Targets
Aichi target 1
model as shown in the Figure 2 below, where
pressure is defined as current environmental
pressure, state as current environmental
conditions, and response as the action taken.
Figure 2. This figure summarises progress on all
signatories to the CBD by grouping signatories
according to how their national targets currently
align to the Aichi Biodiversity Targets, ranging
from ‘On track to exceed’ to ‘Moving away from
the target’, shown left to right, with the type
of target shown top to bottom. Colour bars
indicate the type of progress and colour opacity
represents how commensurate the policy
is with the explicit target.

sustainable use. • Target 9: Controlling invasive Aichi target 2

alien species pathways and Aichi target 3

Aichi target 4
• Strategic Goal C: Improve the status of preventing their establishment. Aichi target 5
biodiversity by safeguarding ecosystems, • Target 11: 17% of terrestrial and inland Aichi target 6

species and genetic diversity. water areas and 10% of coastal and Aichi target 7

marine areas are conserved. Aichi target 8

Aichi target 9
• Strategic Goal D: Enhance the benefits to • Target 16: Use of Nagoya Protocol Aichi target 10
all from biodiversity and ecosystem services. on Access to Genetic Resources and Aichi target 11

the Fair and Equitable Sharing of Aichi target 12

• Strategic Goal E: Enhance implementation Benefits Arising from their Utilization Aichi target 13

Aichi target 14
through participatory planning, knowledge is present in signatories. Aichi target 15
management and capacity building. • Target 17: Submission, development Aichi target 16

and implementation of national Aichi target 17

How Did the Aichi Targets Do? biodiversity strategy plans. Aichi target 18

None of the 20 targets were completely met • Target 19: Research, scientific
Aichi target 19

Aichi target 20
by 2020. Only six targets have been partially support and technology relating 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
achieved (CBD 2020). Of the 60 elements within to biodiversity conservation are
the overarching 20 targets, seven were achieved, improved and widely shared. On track to exceed Target has little relevance
38 showed progress and 13 showed no progress • Target 20: Signatories have mobilised On track to reach Target is significantly lower
or were moving away from target goals. In terms the needed amount of financial resources
Some progress but at an insufficient rate Target is less ambitious or does not address all of elements
of progress by country, 34% of signatories had to implement their national biodiversity
No significant change Target is commensurate
national biodiversity targets that were on track strategy plans via domestic spending
Moving away from the target Target surpasses the scope and/or level of ambition
and 3% of signatory countries exceeded their and international financial flows.
targets. Even so, only 23% of national biodiversity Source: Secretariat of the Convention of Biological Diversity, 2020
targets were aligned with the Aichi Biodiversity

28 29
 Forging ahead...
Despite the failure of the international community to meet the Aichi
Biodiversity Targets, it is still possible to halt and reverse global biodiversity
loss, protect critical habitats and ensure a predictable flow of ecosystem
services over the next 10 years (CBD 2020). In anticipation of the post-2020
global biodiversity targets, experts have drawn attention to the fact that the
interdependence between ecosystems and biodiversity requires mutually
reinforcing goals, and that the failure of any of these goals could undermine
all others (Díaz et al. 2020).
In this context, the CBD’s Fifth Global Biodiversity Outlook presents a vision
of a world in which “biodiversity is valued, conserved, restored and wisely
used, maintaining ecosystem services, sustaining a healthy planet and
delivering benefits essential for all people”. This is now referred to as The
Living in Harmony with Nature 2050 Vision (CBD 2020). The Outlook
describes eight critical transitions needed to achieve the 2050 Vision
covering land and forests, fisheries and oceans, sustainable freshwater,
sustainable agriculture, sustainable food systems, sustainable climate
action, cities and infrastructure, and One Health (that is, healthy ecosystems
and healthy communities) (CBD 2020). As is clear, in order to combat
current trends in biodiversity loss and achieve the 2050 Vision, policymakers
will need to address the shortcomings of the Aichi Biodiversity Targets,
and all sectors of society will have to collaborate and scale up their efforts
to protect biodiversity globally.
The new 2030 Biodiversity Action Targets will be globally focused and
linked with UN Sustainable Development Goals but are expected to be
executed at the national level according to each country‘s unique needs.
As with the goals, there is an urgent need to reduce the threats driving
biodiversity loss such as invasive species, pollution, wildlife trafficking
and unsustainable exploitation of natural resources.
Efforts to address global biodiversity funding needs should be linked
to international climate change goals and efforts through mechanisms
such as nature-based solutions. Furthermore, sustainable production
and consumption of goods and services should be realigned where
needed to bolster biodiversity conservation (Diaz et al. 2020). Along
with measurable biodiversity conservation goals, there is an emphasis on
meeting the needs of people through sustainability and benefit-sharing,
as well as enabling conditions for biodiversity protection through gender
equality, recognising indigenous rights and promoting participation of
all stakeholders, among others.
30
Biodiversity conservation funding has historically been dominated by the
public sector, which represents over 80% of the available financial resources
(See Chapter 2). However, considering the increasing pace of biodiversity loss
and extent of ecosystem degradation, government and foreign aid resources
alone will not be enough to address the global biodiversity funding gap.
Businesses and financial institutions are not only dependent on biodiversity
and ecosystem services for the production of their own goods and services,
but also serve as some of the biggest drivers of biodiversity loss due to
their operations and investments (Jahn 2017). The World Economic Forum
has identified that making transformative changes in businesses, such as
transitioning to sustainable supply chains, could unlock an additional USD
10.1 trillion in annual business value and 395 million jobs by 2030 (WEF and
AlphaBeta 2020). Private investors are already beginning to make this shift
towards sustainable investing – sustainable investment assets have grown
by 34% in the past two years, now totalling USD 30.7 trillion (TNC 2019).
These trends should be a call to action for governments, producers and
consumers to create more sustainable productive relationships with
nature, especially within the agricultural, fisheries, and forestry sectors.
In September 2020, political leaders representing over 75 countries
committed to reverse global biodiversity loss through the Leaders’ Pledge
for Nature, in anticipation of the negotiation process of the post-2020
global biodiversity conservation targets. The pledge recognises the
severity of biodiversity loss, and commits signatories to an “ambitious and
transformational” framework to eliminate negative economic incentives
driving biodiversity loss and to mainstream conservation across multiple
economic sectors (Leaders’ Pledge for Nature 2020).
Financial institutions’ commitments are also increasing. For example,
26 financial institutions including Allianz, AXA, ASN Bank and Mirova have
committed to increase biodiversity conservation impact measurement
and reporting through the Finance for Biodiversity Pledge. Similarly
commitments to sustainable production with nature-positive outcomes
are gaining momentum, including from companies such as Amazon, Credit
Suisse, Danone and Unilever. Global stakeholder coalition platforms such
as Business for Nature, which has been successful in committing over 600
companies to reverse nature loss, are important to scale the private sector
commitments and facilitate the consultation process on the CBD’s
post-2020 Global Biodiversity Framework and targets. There is also
increasing awareness among consumers – the Union for Ethical Biotrade
(UEBT) Biodiversity Barometer for 2020 stated that 82% of surveyed
consumers believed companies “have a moral obligation to assure they
have a positive impact on people and biodiversity” (UEBT 2020).
31
 Current scale
of finance

2
32 33
 Global estimates and what has changed
Before we explore ways to scale up biodiversity conservation finance, it is
first important to look at how finance is currently being delivered. Deutz et al.
(2020) estimate that the global scale for financing biodiversity conservation
is about USD 124–143 billion per year, with 80–85% of funding derived from
the public sector. This represents a significant increase from the USD 52
billion per year of financial flows estimated in 2012 by Global Canopy in
the previous edition of this book (Parker et al. 2012). Even so, estimates of
global biodiversity funding needs are notably higher at USD 722–967 billion.
In sum, current annual biodiversity conservation financing still produces a
biodiversity financing gap of USD 598–824 billion per year by 2030 (Figure 3).
Biodiversity finance mechanisms described in this chapter are ones that act
as avenues for capital to flow towards biodiversity conservation.
Public Finance
Governmental budgets and taxation: In addition to using public budgets,
countries can use a number of fiscal policies such as taxes, fees, tariffs,
royalties, charges, and subsidies to generate revenue to support biodiversity
conservation and/or to disincentivise behaviour that may negatively impact
biodiversity. This book describes taxes, fees and other fiscal measures
that both national and subnational governments can impose on forestry,
water, carbon pesticides and fertilisers. The estimated USD 75–78 billion
in governments’ domestic budgets is the main source of financing for
biodiversity conservation, representing 54–60% of total funding (Deutz
et al. 2020).
Natural Infrastructure: Natural infrastructure comprises networks of
land and water that restore and conserve ecosystem services, which can
replicate the functions of man-made infrastructure (Canzonieri et. al 2006).
Conserving natural infrastructure, such as riparian forests that regulate
water quality and quantity, can help safeguard a wide range of habitats of
high conservation value, including riparian areas, grasslands and coastal
habitats. Much of current investment flow in natural infrastructure has been
related to conserving water quality, where estimates predict that a total
of USD 27 billion flows towards watershed conservation programmes
(Bennet and Ruef 2016; Deutz et al. 2020).
Official Development Assistance (ODA): ODA is government aid, either
disbursed by countries directly or through multilateral institutions, that
promotes and specifically targets economic development and welfare
of developing countries. It includes concessional finance, grants and the
provision of technical assistance. The amount of ODA with biodiversity
34
as a significant marker increased from an estimated disbursement of USD
3 billion in 2007 to a current total of about USD 4–10 billion annually (Deutz
et al. 2020).
Table 2. Current global biodiversity finance – public finance
Type of finance Annual Type
(in USD billions)
Governmental 74.6–77.7 Domestic public
budgets and taxation
Natural infrastructure 26.9 Domestic public
Official development 4.0–9.7 International public
assistance
Total public finance: USD 105.5–114.3
Source: Deutz et al. 2020
Private and Public-Private Finance
Biodiversity Offsets: Biodiversity offsets are regulatory mechanisms
that compensate for adverse environmental impacts resulting from
economic activity in a specific location. This compensation is realised
by the restoration, enhancement and protection of equivalent resources
elsewhere. Biodiversity offsets are the last element of the mitigation
hierarchy (avoid, minimise, restore and offset), used to compensate for
unavoidable damage to biodiversity caused by a development project.
Biodiversity offsets aim to deliver net gains or, at minimum, no net loss of
biodiversity. A total of USD 6–9 billion is invested annually in conservation
through biodiversity offsets (Deutz et al. 2020).
Sustainable Supply Chains: Transitioning the private sector to more
sustainable production practices involves transforming existing supply
chains in alignment with corporate environmental, social and governance
goals (see Chapter 6). The historical impact of global supply chains on
biodiversity has been largely negative, driven by land-use change and
unsustainable agriculture, forestry, fisheries and other processing practices
associated with commodities. A shift towards more responsible supply chain
management practices provides firms with an opportunity to safeguard
revenue in the long term by ensuring the sustainability of habitats that
deliver important commodities. The scale of the contribution to biodiversity
conservation by certified sustainable commodities markets is difficult to
35
 estimate, but recent research suggests that at least USD 5–8 billion is Table 3. Current global biodiversity finance — Public-private finance
directed annually towards protecting biodiversity through these markets
Type of finance Annual Type
(Deutz et al. 2020).
(in USD billions)
Green Financial Products: Green financial products are a collection of Biodiversity 6.3–9.2 Public-private
financial mechanisms, primarily debt and equity, that facilitate the flow of offsets
investment capital into companies and projects that have a positive impact
on biodiversity. This book discusses the role of financial products such as Natural climate 0.8–1.4 Public-private
green bonds, green loans, sustainability-linked loans, and private equity solutions and
funds, among others. An estimated total of USD 4–6 billion is invested Carbon markets
annually in biodiversity conservation through green financial products
Green financial 3.8–6.3 Public-private
(Deutz et al. 2020).
products
Natural Climate Solutions and Carbon Markets: Carbon markets consist Philanthropy and 1.7–3.5 Private
of the pricing and/or trade of carbon, usually in the form of a carbon tax or conservation NGOS
cap-and-trade system. Carbon taxes charge companies for every unit of
emissions they produce. Cap-and-trade programmes put a limit on total Sustainable 5.5–8.2 Private
emissions but allow members within the system to auction off or buy carbon supply chains
amounts from other members. Natural climate solutions are conservation, Total private and public-private: USD 18.1–28.6
restoration and improved land management actions that increase carbon
storage or avoid greenhouse gas emissions across forests, wetlands, Source: Deutz et al. 2020
grasslands and agricultural lands. These programmes can produce carbon
credits, or offsets, which can be traded via carbon market mechanisms.
Natural climate solutions can provide cost-effective solutions to reduce
global emissions by 37% by 2030 (Griscom et al. 2017). A limited number of
funds raised through carbon taxes have gone towards biodiversity. Similarly,
most revenue that has been raised via cap-and-trade markets has been
generated from programmes unrelated to biodiversity, such as renewable
energy investments. Therefore, carbon markets’ contribution to biodiversity
conservation only amounts to USD 0.8–1.4 billion (Deutz et al. 2020).

Philanthropy: Philanthropy as a source of finance includes contributions

from private foundations, business-related foundations and conservation
NGOs such as The Nature Conservancy or WWF. Large philanthropic
foundations generate revenue through an initial endowment that is managed
in perpetuity (Persson et al. 2009). The finance available from philanthropy
sources is estimated at USD 2–3 billion annually (Deutz et al. 2020).

36 37
 Where is biodiversity funding deployed?
2019
Global biodiversity
financing gap
824 USD bn
Around 78% of the world’s biodiversity finance is generated in advanced
economies, while about 22% is generated in emerging or developing
economies. In terms of delivery, however, 59% of total generated
biodiversity finance is spent on ecosystems within developed countries,
while the remaining 41% is deployed to emerging or developing economies.
Only a few major government spending programmes in the United States,
Europe and China account for over 50% of generated global biodiversity
finance (Luck et al. 2009). Unfortunately, even in economic regions
such as the EU – that are highly developed, have relatively high levels of
environmental governance, and have large amounts of biodiversity finance
– the 2020 biodiversity targets were not met.

Most of the world’s biodiversity exists in countries that require further

financial support to implement conservation programmes. Less than 19%
of all biodiversity finance, or approximately USD 9.8 billion, is transferred
internationally to emerging and developing economies, in roughly even
proportions to Africa, Asia, Latin American, and the Caribbean.

Overall, current financial flows have proved insufficient for countries to meet
their national biodiversity targets, and the funding available for biodiversity
has yet to make a significant impact on low-to-middle-income countries,
which are home to the global biodiversity hotspots. Furthermore, populations
in these countries have greater dependency on ecosystem services for
their wellbeing and livelihoods, especially through their reliance on the
agriculture, forestry, fisheries and tourism sectors. Critically, addressing
the global biodiversity financing gap means not only meeting the funding
needs but also effectively delivering finance to these biodiversity hotspots.

8 7 6 5

4 3

Global biodiversity
finance
1 2 143  USD bn
Figure 3.
Current global biodiversity
finance and biodiversity
funding needs. 1. Governmental budgets and taxation USD 75–78
2. Natural infrastructure USD 27
The total graphic area of 3. Official development assistance (ODA) USD 4–10
Figure 3, corresponds to the 4. Biodiversity offsets USD 6–9
upper estimate of Annual 5. Sustainable supply chains USD 6–8
Global Biodiversity Funding 6. Green financial products USD 4–6
Needs of USD 967 billion 7. Philanthropy and conservation NGOs USD 2–4
(Figure 2). 8. Natural-based solutions and carbon markets USD 1

38 39
Learn more Restoring 30% of converted land in priority areas

Effectiveness of
for restoration could mitigate as much as 75% of
extinction debt and sequester as much as 524

biodiversity funding
gigatonnes of CO2, helping combat much of the
recent damage to the natural world (Strassburg
et al. 2020). Restoration also has huge benefits
Approximately 60% of global biodiversity loss for the future. Restoring only 15% of land in
can be attributed to seven countries: Indonesia, priority areas would avert 60% of the expected
Malaysia, Papua New Guinea, China, India, extinctions over the coming decades. Land
Australia and the USA (Waldron et al. 2017). restoration is extremely cost effective when
Levels of biodiversity have declined in the past targeting high-priority areas, many of which are
50 years, but seven countries were able to the exact same areas that are experiencing high
achieve biodiversity improvements from 1996 rates of agricultural expansion and biodiversity
to 2008: Mauritius, Seychelles, Fiji, Samoa, loss. In addition, Dinerstein et al. (2020) argued
Tonga, Poland and Ukraine. While biodiversity that biodiversity conservation and climate
conservation had a positive correlation between stability goals depend on protecting 50 key
conservation spending, there was a significant ecoregions in only 20 countries, many of which
negative correlation with GDP growth and intersect with indigenous community areas.
commercial agriculture growth. Conservation
spending proved to be most effective in
low-income countries and effective governance
was able to mitigate some detrimental effects
of agricultural expansion, which contributed
more to biodiversity decline when paired with
growth in the national population. Conservation
investment from the 109 signatories to the CBD
reduced biodiversity loss by an average of 29%
per country between 1996 and 2008.

40 41
 The overarching
framework

3
42 43
 What is biodiversity finance?
Biodiversity finance is defined by the United Nations Development
Programme Biodiversity Finance Initiative (UNDP BIOFIN) as the
“... practice of raising and managing capital and using financial and
economic mechanisms to support sustainable biodiversity management.
It is about leveraging and effectively managing economic incentives,
policies, and capital to achieve the long-term well-being of nature and
our society” (UNDP 2018). The goal of biodiversity finance is to create
economic incentives within both public and private financial sources
to preserve the world’s biodiversity and stock of natural capital and
subsequently guarantee a sustainable flow of ecosystem services for
the future.

A ‘biodiversity finance solution’ as advocated by UNDP BIOFIN is an

integrated approach to improve biodiversity outcomes and reduce negative
pressure on biodiversity by the use of context-specific biodiversity finance
mechanisms. Each biodiversity finance solution is built on a combination of
elements that may include one or more financial instruments or mechanisms,
financing sources, lead agents or intermediaries, beneficiaries or principal
stakeholders, and the desired financial result (UNDP 2018).

A single biodiversity finance solution can help achieve a variety of financial

results. For example, introducing and enforcing a new national or state-
level ‘no net loss’ requirement can help governments generate additional
resources for conservation through mechanisms such as biodiversity
offsets. Figure 4 presents a conceptual framework of the key elements
of biodiversity finance solutions and their relationship with biodiversity
finance instruments or mechanisms (UNDP 2018).

Figure 5 highlights how financial results are linked to biodiversity by

generating more revenue and delivering finance more effectively to achieve
a positive measurable biodiversity outcome (such as the number of hectares
of degraded land restored) or reducing a threat or negative pressure on
biodiversity. Revenue could be generated through sustainable cacao
products, for which financing could be delivered better through public
guarantees, which in turn could result in a reduction in degraded land,
or the eradication of negative pressures applied through unsustainable
cacao production practices. The avoidance of future expenditures and the
realignment of existing expenditures can reduce the negative pressures
on biodiversity by addressing the drivers of biodiversity loss (UNDP 2018).
Avoiding costs related to fertilisers and pesticides, accompanied by harmful
agricultural subsidy reform, could introduce cost cutting and biodiversity-
positive policy production practices for the public and private sector alike.

44 45
 The importance of a biodiversity financial solution’s mix of mechanisms is Figure 5. Relationship among financial results
central to this book; the mechanisms described in the following chapters
can be combined to achieve improved biodiversity conservation outcomes.
Incorporating a biodiversity finance mechanism into a financial solution
Improved
requires an understanding of conservation programme criteria, and it also
biodiversity GENERATE REVENUE DELIVER BETTER
requires planning to achieve effectiveness, scale and impact. In some cases, outcome
collaboration across organisations can lead to better financing outcomes.
For example, green equity from a financial institution combined with a grant
from a philanthropic organisation can result in a blended finance vehicle
that achieves conservation outcomes that neither of the two mechanisms
could have achieved on its own (chapters 4 and 5).
Reduced
Figure 4. Schematic diagram of biodiversity finance solutions pressure on REALIGN EXPENDITURES AVOID FUTURE EXPENDITURES
biodiversity

REGULATORY GENERATE
REVENUE
Policy instruments

Enabling action Financial flow

MARKET

REALIGN To organise the mechanisms and concepts presented in each chapter,

FISCAL EXPENDITURES
National or international
this book uses the UNDP BIOFIN comprehensive framework for biodiversity
finance supplemented by a consideration of the catalysts that may
facilitate the effective implementation of the elements of the BIOFIN
Finance Lead agent or Mechanisms / Financial
BENEFICIARIES framework. The resulting framework consists of the following:
& BIODIVERSITY
source Intermediary Instruments results
IMPACTS
1. Generate revenue: Increase the number of funds deployed towards
biodiversity protection through public spending, private investment,
Public and / or other measures that can generate or leverage financial resources
Financial instruments

or private CATALYSE GRANT

DELIVER allocated to biodiversity (see chapter 4).
BETTER

DEBT / EQUITY 2. Deliver better: Deliver results for biodiversity conservation through
better resource management, improved efficiency, and greater
AVOID FUTURE
EXPENDITURES
alignment of incentives among actors (see chapter 5).
RISK

3. Realign expenditures: Reduce investments that have negative

impacts on biodiversity and redirect those financial flows towards
activities that positively impact biodiversity (see chapter 6).
Modified from UNDP BIOFIN (2018)

4. Avoid future expenditures: Prevent future costs through strategic

investments and policy changes that protect biodiversity today and
reduce the need for larger expenditures in the long term to restore
or replace lost ecosystem services (see chapter 7).

5. Catalyse: Enhance policy, administrative or investment measures

or enabling conditions that can result in new, improved or scaled-up
biodiversity finance (see chapter 8).

46 47
 As described in this book, many countries and businesses already have a
wide range of experience designing and implementing biodiversity-related
financial mechanisms. A comprehensive list of these efforts is critical to
understand their current biodiversity finance landscape and plan for future
biodiversity finance solutions. However, “care should be taken in seeking
to implement a biodiversity solution in a country and business without first
going through the extensive assessments to understand both their levels
and need of biodiversity financing” (UNDP 2018). UNDP BIOFIN has
supported over 36 countries with the development of frameworks and
activities to produce and implement comprehensive National Biodiversity
Finance Plans (NBFPs) that outline optimum finance solutions to reach
national biodiversity targets.

While it is crucially important to put in place the right policy framework for
biodiversity investment, the private sector has a role to play in generating
capital for and delivering capital to biodiversity conservation programmes.
Investing in biodiversity conservation will therefore require collaboration
across all sectors and, in order for investments to realise positive impacts,
interactions between each sector must contribute to the development of
a financial ecosystem for biodiversity conservation (see chapters 8 and 9).

The following chapters describe biodiversity finance mechanisms under

each element of the overarching framework in more detail, including a
discussion of key catalysts.

48 49
 Generate

4
50 51
 This chapter explores the mechanisms that generate revenue for biodiversity
conservation. The mechanisms described in this section illustrate the
diversity of options available to governments and the private sector to
channel funding to biodiversity through debt, equity, direct payments
via regulatory mechanisms, foreign and domestic support, and others.
The state of play
International and domestic public finance has been, and continues to be,
the largest funding source for biodiversity. However, in recent years there
has been growing interest in, and activity involving, novel approaches to
financing biodiversity conservation. In connection with this shift, public,
philanthropic and private sources of financing are no longer viewed as
mutually exclusive alternatives. Instead, a more collaborative approach
that leverages the strengths of each of these sectors and leverages existing
synergies through blended finance approaches is becoming increasingly
common. The structural challenge that governments must face is that the
economic contribution from the world’s stock of biodiversity and its delivery
of crucial ecosystem services have, until recently, been undervalued or
imputed no economic value at all. However, ecosystem services provided
by healthy habitats provide solutions to many of today’s pressing socio-
environmental challenges. A 2019 study showed that the carbon capture
potential of phytoplankton (37 billion tonnes of CO2 equivalent) is equal to
four times the amount of carbon captured by the Amazon rainforest and 40%
of all CO2 in the atmosphere (Chami et al. 2019). Critical to phytoplankton
survival are nutrients provided by urea from migrating whales; indeed,
whales themselves can sequester an average of 33 tonnes of CO2
equivalent. From this point of view, protecting whales is a nature-based
solution to mitigate the effects of carbon emissions.
The landmark work of The Economics of Ecosystems and Biodiversity (TEEB)
project, and other similar studies that put a value on the ecosystem services
that underpin the viability of businesses, have alerted both governments and
the private sector to the risks they assume by allowing economic activity to
negatively impact biodiversity. Since the 2012 publication of the predecessor
to this book (Parker et al. 2012) interest in the environmental and social
impacts of private investments has exploded. Evidence of increasing investor
interest in financial products that deliver both economic and environmental
returns can be seen in the development of private conservation investments
in public-private debt, green private equity funds and sustainable public
equity funds by investment management companies such as BlackRock
and Vanguard. There have also been increasing calls for more rigorous
metrics to assess the non-financial returns of environmental, social and
governance (ESG) investments.
52
While investor focus has largely been on climate risk and the renewable
energy sector, there is an increasing focus on the dependency of businesses
on biodiversity, natural capital risk, and the negative impacts that these risks
can have across supply chains. The realisation of risks associated with global
biodiversity loss and the resulting impacts is a driver of public and private
collaboration on the development of biodiversity financing mechanisms
and the growth of global biodiversity finance
A brief history
The Convention on Biological Diversity (CBD) lays out clear responsibilities
for developed countries to provide financial resources for the conservation
and sustainable use of biological diversity and the equitable sharing of
benefits arising from its use.
Parties to the CBD are required to cooperate in providing financial and
other support, particularly for developing countries, for in-situ and ex-situ
conservation, and particularly for the establishment of conservation
facilities in developing countries. Critically, Article 20(2) of the Convention
also requires developed country Parties to provide ‘new and additional’
financial resources to enable developing country Parties to meet the
agreed full costs of implementing measures to meet the objectives of the
Convention. What is also clear, no matter the source of funding, is that the
current resources allocated to achieving the Aichi Biodiversity Targets are
inadequate. The current annual finance flow for biodiversity conservation
amounts to USD 124–143 billion (Deutz et al. 2020), which is a significant
increase from the estimated USD 52 billion in 2012 (Parker et al. 2012).
Even the larger sum falls far short of what is needed (see chapter 1). To halt
and reverse the current trend in biodiversity loss, global annual biodiversity
needs are estimated to be in the realm of USD 722–967 billion, requiring a
more than fivefold increase in existing finance flows to meet existing needs.
To that end, this chapter aims to highlight biodiversity finance mechanisms
that hold the most promise for scaling up the flow of capital to biodiversity-
related outcomes, thereby addressing an intractable challenge to meeting
global biodiversity needs.
53
 Criteria 1. Scale
Table 4 presents a conceptual framework to analyse the different The first step in understanding revenue generation is to know how much
mechanisms that can be used for revenue generation. The framework funding could be raised by a given mechanism.
comprises six criteria as follows:
Option:
1. Scale: How much funding will be raised?
2. Timeframe: Over what period? USD 200
3. Level: At what level is finance aggregated?
Numeric value in billions of USD
4. Payer: Who will pay? Who should pay?
5. Value: Why will they pay?
The question of how much finance will be generated is closely related to
6. Direct or mainstream: How will revenues be generated?
when that funding will become available and how predictable the source
Table 4. Generate Revenue – Principles and criteria of finance will be. The scale criterion will use a numeric value (in billions of
USD) representing the estimated annual flows of finance by 2030. The
Principle Adequate Timely Predictable Motivation scale will either be a single number (indicating the best estimate of finance
in 2030), or a range from a low-end estimate to a high-end estimate.
Criterion Scale Timeframe Level Payer

2. Timeframe
How much Over what How and where Is finance
funding will period funding will generated from
be raised? of time? be raised? the polluter or
beneficiary? The timeframe describes the period when financing from a specific
mechanism is likely to scale.
Value Direct or
Will funding go Mainstream Options:
towards activity How will revenue
that sustainably be generated?
uses biodiversity
or ecosystem
services? Short-term Medium-term Long-term
(<2025) (2025–2030) (>2030)

These criteria are based in part on the requirements set by the CBD in
Another key component for revenue generation is that it is made available
relation to the provision of financial resources. Article 20(2) refers to the
in a timely manner. Financial resources can be generated in either the
need for financial resources to be adequate, predictable, and timely. The
short, medium or long term. It is unlikely that any one mechanism proposed
following pages provide an explanation of these criteria and show how
in this book could deliver funding at the scale required to close the global
these can be used to evaluate various mechanisms for revenue generation.
biodiversity financing gap. Therefore, it will be essential that financial
sources and timeframes are matched so that adequate financing is
available when required.

54 55
 3. Level
The level criterion describes whether revenue will be generated by a
mechanism that is implemented by the private sector and/or by the public
sector (either nationally or internationally).
Options:
Private National International Multi-sector
Public Public collaboration
Revenue generation mechanisms can be implemented by private
organisations, local and national governments, public bodies at the
international level, or through multi-sector collaborations involving one
or more of the above. The level at which revenue is generated will have
important implications for both the adequacy and predictability of
biodiversity finance.
Private finance is defined here as revenue that is generated through a
mechanism primarily implemented by the private sector. Private finance
can use voluntary investment mechanisms (for example, green bonds or
environmental impact bonds) or can be driven by national or international
policy regulation (such as biodiversity offsets and carbon markets).
Public sector finance is defined as revenue that is generated through a
mechanism managed by a public body and can be distributed nationally
or internationally. National-level mechanisms raise funding that is initially
generated by local or national governments from tax revenue. International
mechanisms raise funding that is initially generated at a supranational level
and include mechanisms such as official development assistance (ODA).
56
4. Payer
The payer criterion indicates whether finance is generated from the
beneficiary of biodiversity and ecosystems services or the polluter that
degrades them.
Options:
Polluter Beneficiary
Biodiversity finance mechanisms have traditionally been grouped under
two categories: polluter-pays or beneficiary-pays. The basic idea behind this
principle is that the price of a man-made good or service should fully reflect
the total cost of production, including any costs borne from degrading the
natural environment. An organisation paying to offset the loss of biodiversity
caused by building their new manufacturing plant is a common example of
a polluter-pays mechanism. Traditionally, polluter-pays mechanisms have
been enforced by some form of governmental or international regulation.
Many innovative polluter-pays financing options are now emerging that
fall under voluntary arrangements driven either by increased consumer
awareness, corporate social responsibility or risk mitigation strategies.
The other category of mechanism under this criterion is ‘beneficiary-pays’
in which revenue is generated from the beneficiary of biodiversity or
ecosystem services.
57
 5. Value
The value criterion indicates whether finance is generated for the use of
biodiversity and ecosystem services or for some other (non-use) reason.
Options:
Use Non-use
Biodiversity and ecosystem services are valuable to many people for many
reasons. For reasons of quantification and understanding, these values are
often classified in terms of use or non-use values. Mechanisms based on use
values raise finance from actors that will directly use the ecosystem they
are paying for (such as direct ecosystem services fees), or as compensation
for the degradation of an ecosystem (such as offset markets). Mechanisms
based on non-use values raise finance primarily from motivations that are
not derived from the use of an ecosystem, such as philanthropy.
58
6. Direct or mainstreaming biodiversity
Public and/or private investors can put capital into investment structures
(for example, bonds, equities, trust funds) in order to invest in financial
instruments and/or projects that can generate cash flows (for example,
offsets, compensation payments, sustainable products sales) that deliver a
financial return to investors and positive biodiversity impacts. Mechanisms
for generating revenue can generate cash flows that have a direct impact
on biodiversity conservation (for example, national park usage fees and
charges for establishing and managing public areas) or that mainstream
biodiversity investment by creating the right incentives for investors to
deploy capital in a manner that delivers biodiversity co-benefits.
Options:
Direct Biodiversity
Biodiversity Mainstreaming
Investment Investment
One example of mainstreaming biodiversity investment is through the
use of green bonds. Green bonds have, for the most part, not targeted
biodiversity investments directly, but instead have focused on the
renewable energy, real estate and transportation sectors. Indeed, 50%
of the cumulative amount raised from green bonds between 2014 and
2019 has been invested in renewable energy infrastructure (IRENA 2020).
By comparison, less than 1.0% of the total raised in the green debt market
(USD 1.6 to 3.3 billion) was allocated towards biodiversity conservation
in 2019. Mainstreaming biodiversity conservation in sectors such as
renewable energy can provide additional returns and cost avoidance
measures derived from biodiversity conservation to investors. For example,
green bond investors in solar photovoltaic projects can be incentivised,
through public financial guarantees or tax incentives, to allocate a
percentage of the green bond proceeds towards natural infrastructure
for wetland and grassland conservation.
59
 A guide to revenue generation
The UNDP BIOFIN Catalogue of Finance Solutions features over 60 generic
mechanisms and 165 specific finance mechanisms used for financing
biodiversity conservation. This book identifies and analyses a subset of
mechanisms for biodiversity finance that appear to be especially promising
for scaling and may have a track record of successful implementation.
Special consideration has been given to mechanisms that have been used
already by governments, non-governmental organisations, or the private
sector, or that are viewed as realistic alternatives given the socio-political
context of their proposed implementation.
As of 2019, total annual biodiversity offsets are estimated to represent USD
6–9 billion across the 42 countries with biodiversity offset policies in place
(Deutz et al. 2020). Few low- and middle-income countries have adopted
these policies. In contrast, countries where offsets are required by
applicable law or regulations comprise 70% of global GDP (zu Emargasson
et al. 2019). While having large potential for growth, opponents of offset
programmes argue that they give firms licence to pollute by allowing them
to offset their impacts after development has taken place (OECD 2013).
Other issues include the challenges associated with pricing biodiversity
impacts and requiring biodiversity offset purchases, technical capacity
issues related to programme implementation, and governance and
enforcement measures (Deutz et al. 2020). One important issue is around

Biodiversity offsets
SCALE (2030) equivalency: since negative social and environmental impacts may differ
greatly from one location to another, the development may have larger
162–168 bn negative effects than those captured under applicable offset programmes.
The goal of a biodiversity offset programme is to achieve a net gain in
TIMEFRAME
biodiversity (or at least no net loss) when undertaking economic activities
such as real estate developments, infrastructure projects, or other
construction or resource extraction projects that may have a negative
environmental impact (Forest Trends 2018). Offsetting is the final element
of the mitigation hierarchy framework, which offers a framework for
LEVEL avoiding net harm to biodiversity. According to the hierarchy, developers
can avoid negative impacts by considering alternative locations or
construction practices, minimising any unavoidable impacts, and restoring
impacted sites after development takes place (Forest Trends 2018). If these

three steps are followed and environmental impacts could still result in a
PAYER net loss of biodiversity, parties may resort to purchasing offsets, such that
investments in off-site conservation gains help make up for on-site losses
(Forest Trends, 2018).

Biodiversity offsets can be implemented in response to (a) domestic or

local policy requirements, (b) financial performance standards (for example,
VALUE
lenders may require the application of the mitigation hierarchy), or (c)
voluntary private sector policies (Deutz et al. 2020). The two types of
implementation mechanisms available are permittee-responsible offsets
and third-party offsets. Permittee-responsible offsets place the liability for
success on the project implementer. The polluting entity contracts a project
DIRECT implementer to create the biodiversity offset and the project implementer
is responsible for the entire offset. In third party offsets, responsibility
for the success of the offset project rests with a third party, such as a

conservation organisation or a mitigation bank. Most offsets fall within
the permittee-responsible category.

60 61

Case study
The US Aquatic
Resources Compensatory
Mitigation bank
Mitigation banking allows development
projects to trade offset credits generated from
conservation activity in advance of the project’s
implementation (US EPA n.d.). Mitigation credits
are sold to clients who need to offset unavoidable
adverse effects on the environment. The range
of areas where mitigation offsets have been
approved varies on a country by country basis
(World Bank 2020).
The US Aquatic Resources Compensatory
Mitigation Program is a mitigation banking
programme that targets wetlands and aquatic
resources. The purpose of this mitigation banking
scheme is to ensure no net loss of wetlands in
the United States and keep waters clean from
harmful chemical and physical debris. As of
2016, there have been USD 3.25 billion worth of
mitigation credits sold through the US Aquatic
Resources Compensatory Mitigation Program.
These transactions have an annual growth rate
of about 18% and have, in total, protected 5,233
hectares of wetland and 91,139 metres of
streams (Bennett and Gallant 2017).
As defined by the US Army Corps and the
Environmental Protection Agency, compensatory
mitigation in the Aquatic Resources Program
must include “restoration, establishment,
enhancement and/or preservation of wetlands,
streams, and other aquatic resources”
(US EPA n.d.).
62
Biodiversity tradable permits
SCALE (2030)
Mitigation banks either buy land or contract
landowners to conduct these activities as part
of their core operations. In return, the banks or N/A
Biodiversity tradable permits force developers to pay for the right to
landowners receive mitigation credits that can TIMEFRAME
engage in construction activity that is harmful to biodiversity. They are
be sold on the market. Credit values are based
defined by two main features: they must be transferable, and the revenue
on the ecology of the conservation area and
they generate must be used for biodiversity conservation (OECD 2019a).
the types of species being protected. Once a
Examples of tradable permits are transferable fishing quotas or auctionable
mitigation plan is decided for an area of land,
hunting permits. For auctionable permits, revenue is only generated
it is submitted for the amount of credits to be
when the permit is auctioned for the first time. LEVEL
approved. As soon as restoration begins,
a credit goes up for sale.
According to the Organisation for Economic Co-operation and
Development (OECD), there are over 42 active tradable permit schemes
To purchase a credit, a developer will appraise
relevant for biodiversity in 26 countries (OECD 2020a). For example, in
the losses at a wetland or aquatic resources
Alberta, Canada, auctioning permits for sport-fishing and hunting rights
site and calculate how many credits are needed PAYER
generates revenue for biodiversity conservation. The price of individual
to offset these losses. The developer then
permits ranges between CAD 75 and 7,500 (USD 56–5,600) and a
negotiates with a mitigation bank on credit
minimum of 60% of the funds generated have been earmarked to be
prices, which are determined by the area in
invested in projects for the conservation of the Rocky Mountain
which the credit is being produced. Once a credit
bighorn sheep.
is purchased, a consultant from the mitigation VALUE
bank monitors the offset site and reports it to the
Biodiversity tradable permits could also function like cap-and-trade
state and the bank’s interagency review team.
programmes, where the government sets an appropriate total allowable
catch on the fishing stock for the year and allocates fishing units to fishers.
Offsets are not purchased voluntarily; states
Fisheries subsequently buy or sell fishing units to each other. In Chile,
mandate developers to purchase offsets for
the amendment of the Fisheries Law determined that for fully exploited DIRECT
wetland and aquatic resource development.
species, such as the jack mackerel or hake, up to 15% of the annual total
Impact and compensation are negotiated only
allowable catch could be auctioned. In 2019, at least 23 countries had at
between the developer and the mitigation bank,
least one individual transferable quota programme for fisheries in place
but the state approves credit supply and what
(OECD 2020a).
mitigation banks the developer can choose from.
Interagency Review Teams within mitigation
banks are responsible for oversight of the bank’s
programmes and transactions.
63
 Natural climate solutions
SCALE (2030)
25–40 bn
and carbon markets
TIMEFRAME
Most compliance carbon markets arise from regulatory requirements and
are often established as carbon taxes or levies, which place a price on a
measurable unit of greenhouse gas emissions, or as a cap-and-trade system,
where governments set a maximum allowable amount of emissions per
LEVEL sector and then allow companies to trade emission amounts in regulated
markets. In cap-and-trade programmes, high emitters purchase carbon
credits from low emitters in markets where the total amount of emissions
is fixed per sector. Companies reduce their emissions as much as possible,
and then ‘buy’ or ‘sell’ units of carbon emissions depending on how
successful they are at reducing emissions. Projects can range from
switching to renewable energy and capturing greenhouse gases to
protecting habitats that sequester CO2 and its equivalents.
PAYER
Voluntary carbon markets – those that are a result of corporate social
responsibility goals or efforts to reduce environmental and economic
risks – can be structured in a similar way to compliance carbon markets.
In voluntary carbon markets companies set voluntary mitigation goals or
VALUE
purchase carbon offsets (Forest Trends n.d.). They have been experiencing
a significant spike in demand, growing by 53% in volume and 49.5% in
value from 2016 to 2018 (Donofrio et al. 2019).
While lowered emissions can have indirect benefits to biodiversity through
lowering the impacts of climate change, direct biodiversity benefits can
DIRECT OR MAINSTREAMING
BIODIVERSITY
be realised through investments in nature-based solutions (NBS) and
natural climate solutions (NCS). Nature-based solutions, as defined by the
International Union for Conservation of Nature (IUCN), are activities that
protect, sustainably manage and restore natural or modified ecosystems
(IUCN 2019). The European Investment Bank publication Investing in
Nature: Financing Conservation and Nature-Based Solutions and the
Nature-Based Solutions Handbook from the EU’s ThinkNature platform
both offer specific guidelines on how nature-based solutions can be
implemented, and how revenue potential can be estimated from
conservation projects (European Investment Bank 2018; EU Think
Nature 2019).
NCS comprise projects that take advantage of ecosystems’ carbon
reduction services. They are nature-based solutions that have positive
outcomes in terms of emissions reductions and biodiversity conservation.
NCS are estimated to provide cost-effective solutions that can reduce
global emissions by 37% by 2030 (Griscom et al. 2017). An example of
NCS is forest carbon projects that increase absorption of greenhouse
64
gas emissions through both the soil and forest cover (Deutz et al. 2020).
Conserving and protecting carbon-sequestering habitats includes
protecting marine and terrestrial forests such as riparian forests, mangroves
and seagrass. NCS are most effective for biodiversity and carbon when
emission mitigation strategies equally weigh climate and biodiversity
goals. Doing so can enable NCS projects to generate an estimated 95%
of projected biodiversity benefits and approximately 80% of projected
carbon sequestration targets, as compared to projects that focus on one
outcome over the other (de Lamo et al. 2020).
Increasingly, governments and the private sector have been investing
in regulatory frameworks and technology that can enable increased
implementation of NCS. Forest Carbon Partners, for example, works with
large landowners or indigenous communities to develop forest carbon
projects, which these stakeholders then implement. To date, Forest Carbon
Partners has planned 15 projects since 2012, and has sold credits generated
from these products in the California carbon market (World Bank 2020).
Technology is also playing an increasingly important role in guiding the
efficient implementation of NBS and NCS investments. For example,
Pachama, RESTOR and Silvia Terra are start-ups that combine satellite
imagery and artificial intelligence to identify specific forest project features
and their carbon capture potential. These advances help investors and NBS
and NCS project developers to compare forest carbon credits and maximise
their positive biodiversity impacts.
CDP, a UK-based non-profit, conducted a survey of 543 companies from
around the world, and found that at least 84% of these companies had
implemented some type of NCS to offset emissions. Although carbon
market transactions have channelled a limited amount of financing, USD
0.8–1.4 billion, towards biodiversity conservation, use of this mechanism
shows positive momentum (Deutz et al. 2020). Between 2016–2018,
the number of offsets generated through forestry and land-use projects
increased by 264% in volume (Forest Trends n.d.).
65

Learn more
REDD+, past and future
Global forest cover is disappearing at an alarming
rate, despite heightened efforts to mitigate
forest loss. In 2019, tree cover loss increased by
43% in 2019, with 91% of losses between 2001
and 2015 being driven by deforestation in tropical
forests (NYDF 2019). In response to these trends
the Reduced Emissions from Deforestation and
Forest Degradation (REDD) programme was
introduced by the UN Framework Convention
on Climate Change (UNFCCC), with the goal
of providing countries who engaged in forest
conservation activities with compensation to
create a positive incentive for forest protection
efforts (Scholz and Schmidt 2008).
REDD became REDD+ when the UNFCCC
moved to incorporate conservation, restoration
and sustainable forestry goals in addition to
existing emission reduction ones (Graham 2016).
Country participants in REDD+ efforts receive
support from bilateral and multilateral funding
for designing, implementing, monitoring and
evaluating their programmes.
Key activities under REDD+ relate to the
reduction of emissions from deforestation and
degradation, conservation of forest carbon
stocks, implementation of sustainable forestry
management, and enhancement of forest
carbon stocks (Framework Convention on
Climate Change 2016).
Under REDD+, a country must undergo three
phases: readiness, implementation and
results-based finance (Lujan and Silva-Chavez
2018). Readiness and implementation are
preliminary steps before compensation is
approved. The country develops a REDD+
strategy and implements policies in support of
this. Funding for REDD+ comes from a range
of public and private sources such as the Green
66
Debt-for-nature swaps2
SCALE (2030)
Climate Fund or the UN-REDD programme. As of
2018, 88% of countries that passed the readiness
stage have “completed or established forest >0.3–1 bn
Introduced by WWF in 1984, debt-for-nature (DFN) swaps are transactions
inventories” with over half of the country plans TIMEFRAME
in which contributing countries or entities agree to purchase and cancel
containing more than one REDD+ activity (FAO
a portion of a recipient country’s (discounted) debt obligation in exchange
2018). The UNFCCC has concluded, based on
for the recipient country’s commitment to invest an agreed amount in
four countries’ submissions of REDD+ data, that
conservation and/or to make similar conservation commitments. DFN
the programme resulted in a reduction of 6.28
proceeds can be used as initial capitalisation for environment funds. For
billion tonnes of CO2 between 2009 and 2015
example, Seychelles partnered in 2016 with The Nature Conservancy to LEVEL
(FAO 2018).
restructure USD 21.6 million of the country’s sovereign debt. With these
funds, Seychelles repaid loans to the Seychelles Conservation and Climate
Challenges to scaling the REDD+ programme
Adaptation Trust, which helps implement marine protected areas. The
include lack of capacity surrounding programme
purpose of this DFN swap was to enable Seychelles to protect 30% of
monitoring, limited inclusion of certain
its coastal economic zone by 2020 and fund climate adaptation efforts
forest-dependent communities, and limited PAYER
(TNC 2020).
participation of the private sector in the planning
process. In the future, private sector partners
The United States has been the largest player in the DFN market, forgiving
should assess ways in which they can redress
USD 1.8 billion, or 64%, of the total DFN debt market, and generating USD
their supply chains to bolster national
400 million for conservation in 21 countries (Sommer et al. 2020). In several
REDD+ plans. VALUE
cases, there is evidence that DFN swaps have contributed to lower rates
of deforestation. DFN swaps in other high-income nations totalled USD 1
billion in debt swapped with USD 500 million raised for conservation.
Positive momentum has been limited in large part due to the transaction
costs associated with DFN swaps. Challenges include the length of time DIRECT
that interest rate and debt restructuring negotiations typically take (UNDP
2017). Although DFN swaps have raised relatively small amounts of finance
compared with other mechanisms, there may be growing opportunities
to deploy them as low- to middle-income countries invest in reducing their
infrastructure gaps. New lending structures may be able to use DFN swaps
to incentivise more sustainable infrastructure investments. In particular, as
the effects of the economic crisis precipitated by the COVID-19 pandemic
push countries to renegotiate their foreign debt, DFN swaps may provide
a way for countries with high debt burdens to restructure their obligations
in a way that incentivises sustainable economic activities.
The Finance for Biodiversity Initiative has suggested introducing nature
performance bonds. These are green financial products that might work
similarly to debt-for-nature swaps, where the debt of a lending company can
be restructured in exchange for commitments to conservation investments.
The difference is that nature performance bonds can be issued and
restructured where performance outcomes are related to nature and
climate goals (Finance for Biodiversity 2020).
2
 stimates of the potential of Biodiversity-related fees and charges in 2030 have been included in the estimates
E
of the government budgets and taxation mechanism.
67
 Green financial products
SCALE (2030)
31–93 bn
A variety of debt and equity financial products and services can be used
TIMEFRAME
to raise capital for projects or companies that deliver positive biodiversity
returns in addition to financial returns for investors. Investment products
in this category vary in their location on the risk-return spectrum, giving
investors a diversity of options to finance biodiversity conservation. They
are often structured similarly to traditional financial instruments according
LEVEL to their funding and repayment schedule. Equity investments are also used
to deploy capital in a manner that delivers financial and biodiversity returns,
notably through a variety of thematic private equity funds, incubators,
venture capital firms, and exchange-traded funds (ETFs).
Green financial products include green bonds, green lending (including
sustainability-linked loans and green loans) and green equity. Green bonds
are comparable to conventional market bonds in that an issuer of a green
PAYER bond pays the principal and interest back to the lender over a designated
period of time, but the proceeds of the bond issuance are designated for
environmental projects or assets. Likewise, green lending operates similarly
to conventional lending: a bank provides a green loan to a borrower, which
then repays the financing with interest over an agreed period. Finally, green
VALUE
equity involves public or private investments in projects or assets that
generate a return for investors.
Green financial products can channel funding towards projects related to
land, ocean conservation and sustainable resource management. Green
financial products only contribute an estimated USD 4–6 billion annually
DIRECT OR MAINSTREAMING
BIODIVERSITY
to biodiversity conservation (Deutz et al. 2020). As of late 2020, there has
been limited use of green financial products for biodiversity conservation,
partially due to difficulty in pricing benefits or evaluating returns on
biodiversity and ecosystem services.
Despite these difficulties, the market for green financial products has grown
rapidly. But to scale up their contribution to conservation, these markets
need to adopt and implement standard guidelines, such as the EU
Taxonomy for Sustainable Finance, which aims to help investors, firms,
borrowers and project developers channel investments towards more
climate-friendly activities (IEEP 2020).
68
Green financial products: green equity
Green equity comprises public and private equity and is a subset of impact
investing, which seeks social and environmental returns in addition to
financial returns, also referred to as the ‘triple bottom-line’. Public equity is
the biggest asset class in the sustainable investment universe, representing
51% of assets under management. However, until now it has a limited track
record in delivering financing for biodiversity conservation (GSI Alliance
2018). In 2019 the annual USD 2–3 billion impact investments in biodiversity
conservation represented less than 0.5% of the total private equity impact
investments market. Conservation, however, represents a small fraction of
both types of investments (GSI Alliance 2018). Nevertheless, the next 25
years will see new generations of high- and ultra-high-net-worth individuals,
cumulatively representing USD 30 trillion in net worth, who are expected to
raise demand for a range of triple bottom-line investment opportunities
(Deutz et al. 2020).
To meet this demand, institutional investors can invest in and screen
current portfolios for biodiversity-friendly traded stocks, mutual funds,
or exchange-traded funds, referred to as ‘public equity’, that are measured
against financial as well as ESG goals. Green equity in this case refers to
the biodiversity funding products available on public markets, and the way
in which investors invest in them (see chapter 7 for more detail).
Private equity funds are raised from accredited investors and are invested
into companies and/or special purpose vehicles to acquire private equity
stakes in selected entities. Biodiversity-related funds invest in businesses
with a positive biodiversity impact or in thematic assets, such as
sustainable forestry, that offer biodiversity benefits. An example is Mirova,
which manages a range of funds dedicated to natural capital and nature-
based solutions, including the Land Degradation Neutrality (LDN) Fund.
In this way, Mirova is able to finance projects that combine profit with
purpose: ecosystem conservation, restoration and sustainable livelihoods
for local communities. HSBC Pollination Climate Asset Management
is a joint venture between HSBC’s Global Asset Management and the
Pollination Group was established in April 2020, and aims to establish
a series of natural capital funds with USD 1 billion raised for its first fund.
These funds will focus on carbon reduction and sustainable agriculture
and on water conservation goals. It aims to raise an additional USD 2 billion
funds to generate carbon credits, and to eventually raise several billion
dollars from institutional investors to mainstream ESG investments towards
preserving natural capital.
69
Case study
Mirova’s natural
capital work
Over the last 5–10 years, Mirova, the asset
management company dedicated to sustainable
investing and an affiliate of Natixis Investment
Managers, has developed an expertise in natural
capital investing. With the creation of the Land
Degradation Neutrality Fund and the acquisition
and integration of Althelia Ecosphere (renamed
Mirova Natural Capital), Mirova’s natural capital
platform covers a variety of sustainable investing
fields, both terrestrial and marine. As part of this
investment fund family, the company launched
a climate fund (ACF) in 2013. The fund was
established with the intent to invest in projects
that reduce deforestation, mitigate climate
change, protect biodiversity and provide
sustainable livelihoods to rural communities.
ACF funded 10 projects.
One example of this was the fund’s USD 7 million
investment in the region of Madre de Dios, Peru,
to finance the long-term conservation of 591,119
hectares of threatened natural forest. The
investment was made alongside the Peru-US
debt swap fund ‘Fondo de las Americas’
(FONDAM), which contributed USD 2 million
to the project and offered its expertise in
cacao-based agroforestry projects. Within
the protected region are Tambopata National
Reserve and Bahuaja-Sonene National Park,
which contain critical biodiversity hotspots and
provide ecosystem services like water cycle
regulation and carbon sequestration. Like many
other forests, these areas were under threat of
conversion and degradation from unsustainable
land-use practices such as slash-and-burn
agriculture, inefficient pastoral systems,
and illegal mining.
70
As such, the focus of the ACF was to use
Green financial products: green bonds
agroforestry to enable the production of
‘deforestation-free’ cacao in the region,
Green bonds are issued by a variety of public and private players, such
improving the environment and farming
as governments, corporations, intergovernmental institutions, financial
community livelihoods. The investment financed
institutions and development agencies. Green bonds are classified via
400 small farmers to switch to more biodiversity-
nationally or internationally agreed upon standards and industry guidelines.
friendly practices, as well as biological
Certification most often comes from the Climate Bonds Initiative, the
monitoring, scientific research and surveillance
Climate Bond Standard and the International Capital Market Association’s
within the protected areas themselves.
Green Bond Principles. Green bond issuances doubled between 2007 and
As a result, 4,000 hectares of cocoa trees are
2018 and totalled USD 271 billion in 2019 (Bloomberg NEF 2020a). As of
controlled by a smallholder cooperative that
2019, green bond issuances are the highest in the United States, China
works for optimal harvesting, processing and
and France, which collectively account for 44% of 2019 global issuances
commercialisation of the crop. At full scale,
(Climate Bonds Initiative 2020). While financial institutions still account
Mirova predicts that the project will produce
for the bulk of green bond issuances, 2019 saw a year over year doubling
at least 3,200 tonnes of certified deforestation-
in green bond issuances from non-financial corporates, with the largest
free organic and Fairtrade cacao every year.
contribution originating from the energy and buildings sectors. In 2018 and
In addition, the project is certified under the
2019, sovereign green bonds represented 13% of the green bond market
Verified Carbon Standard and the Carbon,
issuance and are one of the fastest-growing categories for financing land
Community and Biodiversity Standards at the
use (25%), renewable energy (25%) and transport (25%) green projects
Gold level to avoid over 4 million tonnes of carbon
(Climate Bonds Initiative 2020).
emissions over the seven-year investment period.
Despite growth in green bond issuances, their contribution to biodiversity
Another relevant example is Mirova’s Biodiversity
has been small. Deutz et al. (2020) estimated that in 2019, only 0.5–1.0%
Fund Brazil (ABF), which aims to reduce
of total capital raised via green bonds was directly or indirectly allocated
deforestation in the Amazon by providing
towards biodiversity protection measures. Considering that the green bond
private investment to replace the recent
markets are projected to reach USD 1 trillion by 2030, private and public
decrease in donations to the Amazon Fund from
conservation actors must take advantage of an increased appetite for green
northern European countries. The fund aims to
bond fundraising to mainstream capital into biodiversity conservation
deploy USD 100 million in blended finance into
(Chahine et al. 2020). For example, Central Arkansas Water, a US-based
sustainable activities. These include investments
water utility, issued the first municipal green bond whose proceeds will
in agroforestry, like the ACF, but also into
be used to buy and protect forests that can protect clean water sources
protected areas, new biodiversity services
(Gartner 2020).
structures, finance and technology.
The fund raised USD 15 million at first close
Green bonds are a promising revenue generation mechanism for
(Environmental Finance 2020a).
biodiversity because they can complement sustainable land use and other
biodiversity projects. However, many biodiversity conservation projects are
too small for the green bond market. To make these conservation projects
better suited for green bonds, project developers must ensure coordination
between all stakeholders and possible bundling of projects into larger
investment opportunities (Chahine and Liagre 2020).
71
Case study
Republic of France
Green Sovereign Bond
Sovereign green bonds account for more than
10% of the global green bond volume and are
among the key drivers of green bonds issuance
for greening public infrastructure and public
services (Climate Bonds Initiative 2019). The
Agence France Trésor (AFT) is the national
manager of France’s debt and treasury (Agence
France Trésor 2017). In January 2017, AFT issued
the first French sovereign green bond, making
France the first country to issue a sovereign
green benchmarking bond. This was achieved
through the creation of a green framework for
its sovereign Obligations Assimilables du Trésor
(OAT) bonds with the objective of providing
liquidity and high standards for investors through
green issuances (Agence France Trésor 2017).
The creation of the Green OAT framework laid
out the foundation for future green sovereign
issuance by France.
AFT’s Green OAT bond issuance was a record-
breaking USD 7.6 billion (EUR 7 billion) bond,
with a 25–year tenor (Environmental Finance
2018). The capital raised through this issuance
will be divided among the targeted investment
areas outlined below according to pre-selected
allocations requested by each French ministry
for its programmes (Agence France Trésor 2020).
Since the initial offering, there have been
multiple follow up issues, increasing the total
capital raised to EUR 25.3 billion as of April 2020.
These bonds have cumulatively raised EUR 3.13
billion for activities related to biodiversity
conservation by September 2020.
72
The objective of the bond is to support the
financing of green sectors in the following areas:
building, living resources, transport, energy,
adaptation and pollution (Agence France
Trésor 2020).
Expenditure of the capital raised through this
project will be tracked and managed by the
Ministry of Finance. The AFT produced the Green
OAT framework, which outlines how the country
would scale Green OAT issuances as it would
a traditional bond. The framework is oriented
towards issuing sovereign bonds that assist
in meeting the national objectives of:
• Climate change adaptation
• Climate change mitigation
• Protection of biodiversity
• Reduction of soil, air and water pollution.
Case study Blue bonds have huge potential for mobilising
The Seychelles Blue Bond
the private sector to support the blue economy.
Beyond the Seychelles Blue Bond, blue bonds
have also been issued by the Nordic Investment
In 2018, the World Bank helped the government Bank and other banks. If even a portion of the
of Seychelles issue the world’s first Blue Bond. funding raised for green bonds (a market size
Seychelles is a small island nation, where fishing of nearly USD 200 billion) could be raised for
is the second largest sector behind tourism. blue bonds, significant marine conservation
Goals of the blue bond include helping the nation efforts could be realised.
build a sustainable blue economy, assisting it
through the transition to more sustainable fishing In September 2020, the Bank of China issued
practices, and protecting ocean biodiversity. its first blue bond worth USD 950 million, the
first issued by a commercial bank (Davis 2020).
Seychelles’ Blue Bond mobilised USD 15 million The funds raised by the bond will be used to
of private investment, which was supported by finance or refinance marine-related green
World Bank credit guarantees and a concessional projects in ocean conservation, renewable
loan, which lowered the bond’s interest rates, energy, sustainable water and wastewater
allowing Seychelles to save over USD 8 million management projects, both onshore and
in interest payments over the bond’s maturity offshore. In November 2020, the China Industrial
schedule. The bond has a coupon of 6.5% and Bank followed this initiative with an issuance of
will be redeemed in three equals (Jackson 2019). a three-year USD 450 million bond to support
The World Bank’s concessional loan allowed marine pollution prevention and sustainable blue
the Seychelles government to only pay a coupon economic development in Asia. These bonds set
rate of 2.8%. the stage for further blue bonds in Asia, where
the blue economy is the foundation of many
The funding generated by the bond will help countries’ economic activity (Davis 2020).
make the blue economy the Seychelles depends
on more sustainable by both protecting marine
biodiversity and financing the transition to a
sustainable economy. The bond will provide
grants for fisheries management activities and
loans to encourage further investment in areas
like post-harvest value adding opportunities and
jobs in the protection of ocean resources.
Allocation of funds for individual projects (either
grants or loans) will be through the Blue Grants
Fund and Blue Investment Fund, both of which
are managed by the Seychelles Conservation
and Climate Adaptation Trust and the
Development Bank of Seychelles (World Bank
2018). These funds will support other publicly
funded sustainable fisheries projects and
implementation of the Seychelles Marine
Spatial Plan for its Exclusive Economic Zone.
73
Case study
The Conservation Fund
Green Bond
Based in Arlington, Virginia, The Conservation
Fund (TCF) is a US environmental non-profit
that focuses on conservation initiatives that
“make environmental and economic sense”
(The Conservation Fund 2020). Within the TCF
is the Working Forest Fund, which has issued
the only green bond dedicated to conserving
working forests in the United States. Working
forests are conservation areas that allow for
wood and forestry product harvesting while
guaranteeing the forest’s overall growth (The
Conservation Fund 2020). The goal is to halt
deforestation in key areas while preserving
forestry jobs.
In September 2019, TCF issued USD 150 million
worth of 10-year green bonds dedicated to
financing the Working Forest Fund, with Goldman
Sachs acting as underwriter. The anticipated
impact of these green bonds will be spread
across five projects that protect 128,576 acres
of forestland, protect 337 miles of streams
and sequester nearly 30 million tonnes of CO2.
The Working Forest Fund aims to conserve 2
million hectares of high conservation value
forests (The Conservation Fund 2020).
Proceeds from the green bonds will help
implement sustainable management plans in the
form of conservation easements. The plans will
be developed on forestlands that TCF purchases
and then transfers to a third party or government
agency for long-term management. Once the
third party assumes control, it can harvest timber
and other forestry products but must ensure that
tree growth exceeds tree harvesting.
74
Projects are assessed by TCF’s Chief Financial
Green loans, sustainability-linked
Officer and General Counsel and are approved by
the Conservation Acquisition Committee along
loans, and credit facilities
with TCF’s Board of Directors (Sustainalytics
2019). Land purchased under the Working Forest
Green loans, like traditional loans, represent the private borrowing of
Fund is subject to conservation easements, which
an entity to provide direct funding for green projects, assets or general
are legally binding requirements that allow the
corporate sustainability strategies, all of which are based on voluntary
transfer of property but severely restrict
investments in conservation. Green loans are most often issued by banks
development rights.
and can be used to finance a specific project on sustainability or a
programme that aligns with a company’s ESG goals. These loans do not
access capital markets like green bonds and usually have a shorter lifetime.
Green loans follow the Green Loan Principles, which are comparable to the
Green Bond Principles of the International Capital Market Association.
The total number of green loans has steadily increased over the past six
years, reaching a USD 89.6 billion issuance in 2019. However after the
adoption of the Green Loan Principles (GLP) in 2018, only 7% of the total
market have been properly labelled as ‘green’ as most borrowers who follow
the green loans use-of-proceeds requirements are not adhering to the
GLP core guidelines (Bloomberg NEF 2020b). Like their green bond
counterparts, only a small percentage of green loans have been directed
to projects that benefit biodiversity. Komaza, a Kenyan start-up that works
with smallholder farmers, provides green loans to farmers to support
sustainable forestry. Farmers are incentivised to grow their own trees
and reduce the pressure on natural forests. In addition to green loans,
free seedlings and financial support for working capital costs, farmers also
reap the benefits of their final harvest. By providing farmers with financial
support and a new income source, which totals USD 1,500 per half-acre
plot, Komaza is able to provide a consistent disincentive to deforestation
(Environmental Finance 2020b).
Sustainability-linked loans (SLLs) are similar to green loans in terms of
repayment but differ in intention and use of proceeds. SLLs can be used for
general corporate strategy rather than for the financing of specific projects
related to its sustainability targets. The terms of the loan are connected to
the borrower’s sustainable performance targets, which are agreed between
the lender and borrower. Key principles of SLLs are (a) the loan is related to
the borrower’s corporate social responsibility profile, (b) the loan is based
on performance targets agreed upon between the lender and borrower,
(c) borrowers report on their progress on the agreed-upon targets and other
needed information, and (d) external review of the loan and its progress is
conducted. Globally, sustainability-linked loans reached a volume of USD
121.5 billion in 2019. Compared to green loans, sustainability-linked loans
are newer but have already outpaced the green loan market in volume in
2019 and 2020.
75
 UPM is a Finnish pulp and paper maker that uses renewable materials,
produces recyclable products, and owns 500,000 hectares of forests in
Finland. In 2020, UPM borrowed EUR750 million (USD 828 million) from
BNP Paribas through a five-year SLL that ties interest rate reductions to
performance indicators. These indicators include a net-positive impact on
their forests‘ biodiversity and a 65% reduction in CO2 emissions from fuels
and electricity by 2030 (Hurley 2020). Enel, the multinational energy
group, established a sustainability-linked financing framework to introduce
their first EUR1 billion (USD 1.2 billion) SLL and revolving credit facility
in October 2020. The SLL is linked to Enel increasing its current 52%
of installed renewables capacity to at least 60% by 2022. The SLL also
includes conservation targets for investing in environmental impact
assessments, monitoring systems, bird and fish protection programmes
and land remediation activities (Enel Group 2020).

76 77
Case study
Indonesian Tropical
Landscape
Finance Facility
The Indonesian Tropical Landscape Finance
Facility (TLFF) is a multi-stakeholder partnership
involving several international entities including
the UN Environment Programme (UNEP), World
Agroforestry (ICRAF), and private entities such as
BNP Paribas, ADM Capital, and Partners Group’s
PG Impact Investments. It seeks to finance
projects and companies in Indonesia to promote
green growth and sustainable rural livelihoods.
To achieve this, the facility consists of a lending
platform and grant fund that support projects
related to sustainable agriculture and renewable
energy. A long term offtake agreement with
Michelin, the French multinational tyre
manufacturer, was a vital part of reducing
the risks to investors.
The Indonesian TLFF generates revenue to
support its activities through two mechanisms.
For its lending platform, revenue is obtained
by securitising long-term loans issued by the
TLFF through medium-term notes that are
sold to institutional investors. The grant fund,
on the other hand, relies on donations from
philanthropic organisations. In February 2018,
the TLFF completed its inaugural transactions,
issuing a sustainability bond of USD 95 million
for the financing of natural rubber production
and the rehabilitation of degraded land. The
financed project is intended to help protect
Bukit Tigapuluh National Park by supporting
a buffer zone (Environmental Finance 2019).
This structure combined concessionary capital
in a blended finance structure in the form of
guarantees and reduced coupons that reduced
risk for investors in the issued notes.
78
A USD 120 million second tranche for this
project is projected to be issued in the future.
The various founding partners in the TLFF
manage different parts of the facility. The TLFF
secretariat is supported by UNEP and ICRAF. This
entity reports to the TLFF Steering Committee,
and it supports the lending platform managed
by ADM Capital and the grant fund managed by
the UN Office for Project Services. The medium-
term note programme, which structures and
sells notes to institutional investors, is arranged
by BNP Paribas.
The TLFF uses two methods of delivery for
projects it supports. Its lending platform issues
long-term loans to projects in the sustainable
agriculture and renewable energy space. On
the other hand, its grant fund offers technical
assistance and grants to cover early-stage
costs of projects. As in the natural rubber
production project, often both of these finance
mechanisms are combined to support the
execution of a project.
Learn more
Sustainable
ocean economy
In total, goods and services from the ocean
amount to USD 2.5 trillion per year in the form
of fishing, transportation, energy, tourism and
more (WRI 2018). Further benefits are derived
each year from the fact that the world’s oceans
sequester nearly 25% of global CO2 emissions
and absorb 93% of climate heat (Credit Suisse
2020a). However, the strain that human
practices are placing on ocean economies will
result in further loss of natural resources and
biodiversity. Key markers of losses in biodiversity
from irresponsible ocean management include
a loss of 20% of the world’s coral reefs, a loss of
20% of the world’s mangroves, and the fact that
33% of marine mammals are now threatened and
66% of the world’s oceans are experiencing
cumulative pressures from human activity
(IPBES 2019).
Sustainable ocean management and fisheries
investment can secure marine services and
products for future generations. Sustainable
ocean economy programmes acknowledge the
need to harvest ocean goods but in a way that
preserves marine ecosystems, such as marine
protected areas, managed to conserve
biodiversity by governments or public-private
partnerships (CPIC 2019). In the case of fisheries,
only 7% of current global fish stocks are able to
sustain additional catch, while experts have
recommended reducing global fishing volumes
by up to 50% (FAO 2018; Credit Suisse 2020a).
Fisheries provide income to millions of families
and represent the main source of protein for
approximately one billion people. However, there
is a severe lack of investment to help fisheries
transition to more sustainable management
practices. The investment gap in the sector is
estimated to be USD 200 billion. To close this
gap will require investment from outside the
public sector, which currently dominates marine
conservation funding efforts (Sumaila et al. 2012;
OECD 2019c).
In addition to unsustainable fishing practices, it is
estimated that 8 million tonnes of plastic enter
our oceans annually (Ocean Conservancy 2020)
posing multiple threats to marine life ranging
from fatalities due to ingestion or entanglement
to transporting invasive marine species and
disrupting ecosystems.
The international community should encourage
the development of investible Blue Economy
strategies that are both profitable and
sustainable. Investor interest already exists – 75%
in one study stated they believe the sustainable
Blue Economy is investible while 45% of asset
managers said that their clients are asking for
sustainable Blue Economy investments (Credit
Suisse 2020a). Some of these investible
products are already being created. Credit
Suisse, in partnership with Rockefeller Asset
Management, launched the Ocean Engagement
Fund in September 2020, which raised USD 212
million in the first month. The fund specifically
addresses investment needs under SDG 14,
one of the SDGs attracting the least amount
of private capital. It aims to proactively engage
with portfolio companies to steer them away
from practices that harm the ocean, and
encourage projects that mitigate the effects of
climate change and lessen biodiversity loss by
targeting three key themes: ocean conservation,
pollution prevention and carbon transition
(Credit Suisse 2020b).
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Case study
Mirova’s Sustainable
Ocean Fund
Mirova‘s Sustainable Ocean Fund (SOF), a
public-private partnership with Conservation
International and the Environmental Defense
Fund, works to attract private investment in the
sustainable ocean economy. The SOF is
dedicated to implementing ocean-friendly
practices in developing countries and small
island states. Projects include supporting
fisheries to maintain sustainable levels of marine
fish stocks, providing financial incentives for
low-impact aquaculture, responsible seafood
supply chains, wastewater management,
and more. The Environmental Defense Fund
projects that an additional USD 51 billion per
year in profits could be derived from fisheries
if sustainable fishing practices were
implemented, a near 115% increase.
The SOF initially began with pledges from a
variety of large institutional players, such as the
European Investment Bank, AXA Investment
Managers, Inter-American Development Bank,
and Caprock Group. In addition, USAID’s
Development Credit Authority facility committed
a USD 50 million risk-sharing guarantee to attract
further private investment into the fund (see
chapter 5). With USAID’s support, the SOF is
expected to deploy USD 100 million, of which
40% will be allocated in Latin American
countries, 30% in African countries, and 30% in
Asian countries. In early 2020 the fund achieved
its final close at USD 132 million dollars in capital
commitments towards this goal.
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Other funds focused on the sustainable ocean
Structured notes
economy and marine conservation have cropped
up to play similar roles. In 2020, the United
A structured note is a type of security that has many of the characteristics
Nations Multi-Partner Trust Fund for Coral Reefs
of a debt security but includes a derivative component, where investment
was launched, aiming to deploy USD 500 million
returns are tied to the performance of an underlying asset, stock, or index.
to protect coral reefs over the next 10 years
In general, structured notes target accredited investors and are subject
(UNEP 2020a). The fund draws resources from
to lighter regulation than publicly traded securities, which makes them
multiple foundations and UN agencies, along
more customizable and reduces the transaction costs associated with
with private investment from Mirova and others.
structuring and issuing securities. As they can be tailored to meet a variety
In 2020, BNP Paribas Asset Management also
of market demands, structured notes are favoured by investment banks
launched the Easy ECPI Global ESG Blue
and other financial institutions with sophisticated structuring expertise.
Economy UCITS ETF, the first blue economy
For example, Credit Suisse and Mirova Natural Capital collaborated on the
exchange-traded fund. The index‘s USD 40.8
Credit Suisse Nature Conservation Notes, an innovative structured note
million (EUR 35 million) fund invests in 50
designed to provide exposure to Mirova Natural Capital and the projects it
companies that are selected for their
invests in to private banking clients. These projects aim to reduce carbon
participation in five blue economy categories:
emissions from deforestation and promote sustainable agriculture and
coastal livelihood, energy and resources, fisheries
land use projects in the tropics.
and seafood, pollution reduction, and maritime
transport (Segal 2020; Environmental
Another example of structured notes targeting conservation outcomes
Finance 2020c).
is Credit Suisse’s Low Carbon Blue Economy Notes offering, launched at
the end of 2019. The assets underlying the Notes are World Bank bonds
supporting projects designed to promote strong governance of marine and
coastal resources for sustainable fisheries and aquaculture, make coastlines
more resilient, establish coastal and marine protected areas, and improve
solid waste management to reduce pollution in waterways and oceans. In
addition, the Notes offer investors a sustainable equity upside participation
through exposure to a low carbon equity index.
As is well known to practitioners, differences in scale are endemic to the
biodiversity financing space. In addition to making it possible for private
banking clients to put capital into funds that, due to their minimum
investment size, would be out of reach to them by pooling their capital into
a special purpose vehicle that acts as a limited partner in a fund, often the
problem of scale differences comes up in a different context. In many cases,
worthy conservation projects cannot tap into mainstream investment
capital because the projects’ capital needs are smaller than the minimum
investment size of potential investors. In cases such as these, structured
notes may allow these differences to be bridged by aggregating or pooling
projects into a structure that meets the minimum size requirements of
investors. In this way, structured notes may enable for-profit investments
in biodiversity conservation that might not have occurred but for the
customization allowed by these versatile financial products, while at
the same time creating jobs for local entrepreneurs who can pool these
projects and manage the associated investments.
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 Biodiversity-related fees and charges3
SCALE (2030)
Case study

WWF Thailand’s FLR349 Biodiversity-related fees and charges are revenue-raising mechanisms that
1.8–4.9 bn
Agroecology Fund also incentivise pro-conservation behaviour in businesses and individuals
(OECD 2020b). A fee or charge differs from taxes in that with fees or
TIMEFRAME

charges a payment is made to a public entity in order to receive some

Monoculture maize farming is the biggest driver
specific benefit in return, such as access to a natural park or the right to
of deforestation in Thailand, often encroaching
fish. On the other hand, taxes are non-voluntary payments used to finance
on forests in watershed areas. Small farmers
government budgets. According to the OECD Policy Instruments for the LEVEL
often find themselves trapped in a cycle of debt
Environment (PINE) database, roughly USD 2.3 billion was generated per
where illegally expanding into the forest can
year between 2012 and 2016 through biodiversity-related fees and charges.
appear to be the only way out.
While most of this revenue did not have a specific biodiversity component,

many affected activities were related to biodiversity protection, such as
To combat this problem, WWF Thailand
fishing fees and natural park tickets (OECD 2019a). Often, the revenue from
co-manages the FLR349 agroecology fund PAYER
fees and charges is specifically destined to be used in related biodiversity
to support farmers to transform chemically-
initiatives to avoid the use of funds for non-conservation related purposes.
intensive monocultures into more sustainable
mixed farms. Farmers are trained to mix perennial
Fees and charges can also assume the form of government concessions,
trees, fruit trees, vegetables and herbs in a
where governments allow private companies to run a park or conservation
system that effectively provides both a carbon VALUE
area and collect the ensuing biodiversity fees.
sink and a water reservoir. This results in diverse
and healthy crops, helping farmers reduce their
Within the PINE database, 189 different fees and charges are being
cost of living while still generating income.
tracked within 48 countries (OECD 2020b). Future issues to tackle within
biodiversity-related fees and charges are mainly related to reporting
The fund is financed through donations from
on revenue collected from these mechanisms. Only 48 countries are DIRECT
businesses and individuals who want to make
submitting information and the available data do not capture the total
a tangible impact by supporting a transition
amount of biodiversity fees. According to the PINE database, USD 1.2–2.3
to sustainable agriculture. The fund supports
billion is generated each year within biodiversity-related fees and charges
farmers in this transition with the help of
(OECD 2020b). Estimates of the potential of biodiversity-related fees
Thailand’s Ministry of Natural Resources and
and charges in 2030 have been included in the estimates of government
Environment, which provides legitimate land use
budgets and taxation below.
rights to the farmers. The fund plans to scale up
to managing 8000 hectares within five years and
intends to continue to expand beyond that with
increasingly commercial investment. From 2017
to 2019, the fund provided direct benefits,
including seedlings, to 670 smallholder farmers
and trained 2,000 more on sustainable
agriculture techniques.

Estimates of the potential of Biodiversity-related fees and charges in 2030 have been included in the estimates
3

of the government budgets and taxation mechanism.

82 83
 Government budgets and taxation
SCALE (2030)
103–155 bn
Currently, the largest source of finance for biodiversity and ecosystem
TIMEFRAME
protection is domestic government spending. Finance raised from
domestic budget allocation is the contribution of national and subnational
governments to domestic biodiversity conservation and ecosystem
services provision. It is important to note that whilst many of the other
mechanisms discussed here could be used domestically, this mechanism
LEVEL refers specifically to the allocation of finance from government budgets.
Relating to biodiversity protection, this can be through establishing and
maintaining protected areas, making tax revenue from national parks
dedicated to conservation, funding public-led conservation projects and
executing environmental laws. These efforts implicitly recognise the
PAYER nature of biodiversity as a public good.
The current scale of domestic finance is around USD 75 to 78 billion per
annum, or roughly 54–61% of the total public spending on biodiversity
(Deutz et al. 2020). Tax revenues are expected to increase in many
developing countries, some of which may be dedicated to biodiversity
VALUE
conservation. Taxes and fees can pledge revenues to positive social and
environmental outcomes, which biodiversity could benefit from. Fines,
fees, penalties and tradable permits are some mechanisms that could
be used to generate domestic finance for conservation (see chapter 7).
Even though there are a variety of finance mechanisms for governments,
DIRECT OR MAINSTREAMING public resources are still limited, and there is intense competition to
BIODIVERSITY
address other global challenges, such as renewable energy, public health,
food security, and more (UNDP 2018).
It is highly unlikely that domestic public budgets for biodiversity alone
have the potential to scale up enough to close the biodiversity financing
gap by 2030.
While domestic budgets alone cannot stop biodiversity degradation,
governments can cooperate with financial institutions to stimulate
investments, mobilise resources via de-risking tools, or create regulatory
market frameworks conducive to incentivising biodiversity finance (OECD
2019a). The public sector also has a role in redirecting expenditures away
from biodiversity-damaging activities, such as fossil fuel and certain
agricultural subsidies, or promoting biodiversity-positive expenditures in
non-core biodiversity agencies such as health, education or public works.
84
Official development assistance (ODA)
SCALE (2030)
8–19 bn
Official development assistance (ODA) is financing provided on concessional
TIMEFRAME
interest rates or terms by national governments, development banks and
international organisations to developing countries to promote development.
Due to the large overlap between environmental and developmental
goals, ODA often delivers finance for the environment. A small percentage
of ODA does have the primary goal of supporting the conservation or
sustainable use of biodiversity. The OECD tracks all reported ODA flows, LEVEL
and has specifically tracked ODA for biodiversity since 1998. Beginning in
2006, the OECD made reporting on biodiversity activities financed through
ODA mandatory, with members of the Development Assistance Committee
required to report on biodiversity targets called ‘Rio Markers’ (OECD 2017).
These markers identify biodiversity conservation as a ‘primary’ or ‘significant’ PAYER
outcome for an ODA programme.
Similar to domestic budget allocation, biodiversity-related aid arises
primarily through contributions from national governments’ general
budgets and can flow as bilateral aid or through multilateral institutions
VALUE
such as the Global Environment Facility (GEF) or UN programmes.
Most biodiversity-related ODA (73%) is delivered into the areas of
environmental protection, forestry, water supply and sanitation, agriculture,
and fishing, and approximately one third goes to African countries. ODA is
crucial to scale biodiversity projects in countries that lack the capital to do DIRECT OR MAINSTREAMING
BIODIVERSITY
so. Key challenges to strengthening ODA delivery include a lack of reliable
metrics to determine the biodiversity allocation of complex aid programmes
and difficulties in ascertaining the biodiversity benefits of aid (Stepping and
Meijer 2018). ODA for biodiversity is USD 4–10 billion per year (Deutz et al.
2020). While this ODA has historically been quite well-targeted when
addressing biodiversity goals, its future effectiveness depends on how
it is used. ODA is necessary, but not sufficient to finance biodiversity
conservation at the level that is needed, which means ODA is best used
to provide catalytic financing for other sources of finance. ODA can serve
an important role in de-risking, encouraging and setting precedents for
other types of investment in biodiversity.
85
 Philanthropy and conservation NGOs
SCALE (2030)
3–8 bn
TIMEFRAME
Philanthropy includes contributions from private foundations, business-
related foundations and conservation NGOs, who also benefit from
philanthropy themselves. Several business-related foundations contribute
to conservation through donations under their corporate social
responsibility initiatives. A number of large philanthropic foundations
generate revenue for biodiversity through an initial endowment that
LEVEL is managed in perpetuity. One example is the USD 459 million commitment
led by the Ford Foundation and 17 other philanthropic foundations.
This provides with resources to sustainably manage natural habitats
(Ford Foundation 2018).
VALUE These contributions, however depend on the success of commercial
investments. Conservation NGOs on the other hand generate revenue
from a variety of sources including membership fees and government
contributions. The amount of funding available for conservation activities
from philanthropy is limited and is unlikely to be meaningfully scaled.
Only 3% of US philanthropic capital is allocated to environmental causes
DIRECT OR MAINSTREAMING
BIODIVERSITY (Tazawa 2019). Nevertheless, foundations and NGOs increasingly
provide visibility and strategic focus that may catalyse the investment
of other forms of capital not otherwise available.
While philanthropic grant-making totals can be difficult to estimate
accurately, they have been estimated to be in the range of USD 2–4 billion.
Jeff Bezos, the founder of Amazon, pledged USD 10 billion to fight climate
change through his Earth Fund, which includes a USD 10 million
commitment for reforestation (Tett 2020). The first recipients of funding
from Bezos’ Earth Fund include the Environmental Defense Fund, which
received USD 100 million to complete and launch MethaneSAT, a satellite
that tracks methane pollution. Fifteen other NGOs, including The Nature
Conservancy, the World Resources Institute, and the World Wildlife Fund,
also received portions of the total USD 791 million granted to work on
nature-based climate solutions (Mufson 2020). This ‘green pledge’
represents the largest single environmental donation by a philanthropist
and could affect future conservation giving trends.
Bloomberg Philanthropies’ Vibrant Oceans Initiative launched in 2014 with
an initial commitment of USD 53 million in Brazil, Chile and the Philippines
(Bloomberg Philanthropies n.d.). The initiative partners with coastal
communities, non-profits, local and national governments, policymakers,
and academic groups to advance evidence-based conservation practices
and implement data-driven fisheries management policies. In 2018, the
initiative was expanded to include 10 fisheries-dependent target countries,
funded via a USD 86 million investment.
86
Natural infrastructure and payments
SCALE (2030)
105–139 bn
for ecosystem services (PES) TIMEFRAME
Natural infrastructure is a term that refers to a network of land and water
bodies that deliver ecosystem services to human populations (Deutz et al.
2020). Financial flows from payments for ecosystem services (PES)
programmes can be used to invest in natural infrastructure, which may
provide a range of ecosystem services that more sustainably deliver the LEVEL
services that utilities, such as water treatment plants, carry out (Abel et al.
2017). Not all ecosystem services involve economic returns.
PES in fact represents a variety of mechanisms that can be used to
conserve biodiversity. These mechanisms may fund conservation that PAYER
provides climate mitigation benefits, as in REDD+ programmes, or they can
fund ecosystem services that mimic the services that grey infrastructure
provides. Ecosystems such as riparian forests can provide water quality
and quantity regulation, and in doing so might provide more a more cost-
effective alternative to grey infrastructure investments (Deutz et al. 2020).
VALUE
Based on Forest Trends’ State of the Watershed Report, Deutz et al.
(2020) have estimated that USD 26.9 billion has been allocated to
payments for natural infrastructure related to watersheds (Bennett and
Ruef 2016; Deutz et al. 2020). Of all valued and paid-for ecosystems,
payments to protect watershed ecosystems have been the most mature, DIRECT
featuring high transaction value and geographical distribution.
A 2015 survey of 378 watershed programmes conducted by Forest Trends
revealed that 139 programmes are funded by public subsidies, 197 get their
funding from user fees or funds, and 20 programmes receive funding from
environmental markets, out of which the majority of funding has come
from public subsidies (Bennet et al. 2015). The other 22 are funded by
government schemes that purchase water rights to conserve watersheds
or replenish groundwater (Bennett and Ruef 2016).
The Australian state of Queensland and HSBC recently announced they
would be the first purchasers of publicly and privately produced reef credits.
These credits quantify the value of conservation activity undertaken to
improve the quality of water flowing into the Great Barrier Reef (EcoVoice
2020). These investments, in addition to similar investments made by the
US Army Corps of Engineers to protect coastal ecosystems that prevent
coastal flooding, show that investments in conserving biodiverse habitats
can have direct benefits to communities, either through protecting
ecotourism revenue or protecting natural resources (Deutz et al. 2020).
87
Case study
China’s Sloping Lands
Conservation Programme
China introduced the Sloping Lands
Conservation Programme (SLCP) in response
to a drought along the Yellow River in 1997 and
massive floods along the Yangtze River in 1998
(Liu and Lan 2015). SLCP introduced fixed
payment incentives that compensated rural
households for converting sloped arable land to
forest or grassland that could mitigate the effects
of future flooding, while alleviating adverse
effects on households’ livelihoods (Liu and Lan
2015). China’s State Forestry Administration
implements the programme, with its finances
being managed by the Ministry of Finance, while
regional and local government officers are in
charge of enforcing the programme at the
household level (Leshan et al. 2018).
Since its inception, the programme has gone
through four stages between 2002 and 2020,
which were: (1) a pilot stage that covered 382
thousand hectares in three provinces between
1999 and 2001, (2) a full implementation stage
that covered 14.7 million hectares and 25
provinces between 2002 and 2007, (3) a retreat
phase in which new conversions ceased and
payment rates were cut in half between 2008
and 2014, and (4) a new round stage, in which an
additional 2.8 million hectares was added to the
programme as well as an addition of new poverty
alleviation objectives (Leshan et al. 2018).
Between each phase, the format for the PES
programme varied. In the first stage and the first
three years of the second stage, payments were
made in-kind through grains from the National
Grain Reserve (Leshan et al. 2018). Payments
shifted to cash after 2004, when China’s grain
surplus was no longer of national concern
(Leshan et al. 2018). Some households still
88
received in-kind payments in the form of
tree seedlings, for example. Payments were
provided over two, five, or eight years, based
on whether households were planting
grasslands, commercial trees or biodiversity-
friendly ‘ecological’ trees, respectively (Leshan
et al. 2018). The programme’s grain subsidies,
seed funds, maintenance fees and special funds
cost the central government approximately USD
69 billion between 2002 and 2012. Of this
amount, the government contributed USD 52
billion in the form of direct payments to
households (Leshan et al. 2018).
Studies as early as 2005 showed that the
programme was able to realise environmental
benefits related to soil erosion control as well
as a reduction in silt run-off in converted areas
(IIED 2012). Furthermore, China’s afforestation
policies have significantly affected the country’s
net greenhouse gas emissions. China contributed
about 27% of global CO2 emissions in 2017, but
recent studies show that China’s growing forests
sequestered up to 45% of the country’s
anthropogenic emissions from 2010 to 2016
(Wang et al. 2020). Having said this, some
studies have shown that the survival rate of
planted tree species can be quite low, reducing
the positive impact they can have. Furthermore,
while commercial trees might offer some
protection from silt run-off and sequester carbon,
they do not necessarily have positive biodiversity
effects (IIED 2012).
Case study Overall, the programme has had successful
PES in Costa Rica
environmental and social outcomes. Since its
inception, the programme has signed 16,500
as a driver of
contracts with private landowners and restored
1,250,000 hectares of forest land (Porras et al.
forest conservation
2018; Malavasi and Kellenberg 2014).
Participation of indigenous, small landowners
and women-owned properties has increased
In 1996, Costa Rica introduced measures to since the programme’s inception as they have
compensate landowners for tropical forest been given priority in application. Moving
conservation, and to provide incentives for forward, issues must be resolved that relate
communities to slow down the country’s to access to funding and better targeting of
fast deforestation rates (Porras et al. 2012). communities who rely on forest land but do
Since 1998, the National Forestry Finance not have nationally registered property rights.
Fund (FONAFIFO) has become the central
administrator of the programme and manages
its performance through local offices.
Four main objectives guide the programme:
(1) carbon sequestration, (2) biodiversity
protection, (3) water regulation, and (4)
landscape beauty (Porras et al. 2018). The
government of Costa Rica distributes direct
cash payments to PES contract holders based
on the type of conservation work that contract
holders undertake, which includes forest
protection, reforestation, regeneration
and agroforestry (Porras et al. 2012).
Programme funding has come from a fuel tax,
a water tax, loans, and agreements with private
and semi-private companies (Porras et al. 2018).
Revenue from the 3.5% fuel tax is a fixed annual
amount linked to carbon emissions, which
averages at USD 12–15 million of annual funding
for the programme (Porras et al. 2018; Malavasi
and Kellenberg n.d.). The programme receives
25% of water fees. Finally, private sector
stakeholders who are interested in forest and/or
water protection have also provided funding
(Porras et al. 2018). The majority of funding
comes from government allocations.
89
 Conclusion Table 5. Current and future public and private financing for biodiversity conservation

Current scale of finance Mechanisms Type of finance 2019 lower limit – 2030 lower limit –
As shown in Table 5, recent estimates suggest that 2019 financial flows into that increase upper limit upper limit
biodiversity conservation were somewhere in the range of USD 124–143 capital flows USD bn/yr USD bn/yr
billion, corresponding to 0.12–0.14% of global GDP (Table 5 and Figure 6). into biodiversity
Recent efforts have provided values for global biodiversity conservation
Government budgets Public 75–78 103–155
financing using alternative data or methodologies.
and taxation
In April 2020, the OECD’s Comprehensive Overview of Global Biodiversity Natural infrastructure Public 27 105–139
Finance report estimated global biodiversity finance at USD 78–91 billion Private
per year based on available 2015–2017 data. The OECD estimate provides a
detailed overview of public domestic and international public expenditures Sustainable Private 5–8 12–19
from the OECD Creditor Reporting System, OECD Policy Instruments for supply chains
the Environment, the Clearing-House Mechanism CBD portal, UNDP
BIOFIN biodiversity expenditure reports, and the Classification of the Biodiversity offsets Public 6–9 162–168
Functions of Government datasets. Private

Official Development Public 4–10 8–19

In 2020 UNDP BIOFIN calculated that global annual public investment
Assistance (ODA)
in biodiversity had increased from around USD 100 billion in 2008 to about
USD 140 billion in 2017, with an average of USD 123 billion invested annually Green financial Public 4–6 31–93
(± 1 billion) over this period. This UNDP BIOFIN estimate also focused products Private
on government spending and used a statistical model to project global
spending based on a sample of 30 countries’ biodiversity expenditures Philanthropy and Private 2–3 3–8
over 2008–2017. Therefore, there is potential for under-reporting of the conservation NGOs
total global biodiversity conservation investments to date.
Nature-base solutions Public 0.8–1 25–40
and carbon markets Private

Total: 124–143 449–640

Notes: Values are adjusted to 2019 USD. Detailed methodology is available in the appendix in Deutz et al, 2020. 

90 91
2019 2030
Global biodiversity Global biodiversity
financing gap financing gap
824 USD bn 327 USD bn

8 7 6 5

4 3

8 7 6 5

4 3

Global biodiversity Global biodiversity

finance finance
1 2 143  USD bn 1 2 640 USD bn

1. Governmental budgets and taxation USD 75–78 1. Biodiversity offsets USD 162–168
2. Natural infrastructure USD 27 2. Governmental budgets and taxation USD 103–155
3. Official development assistance (ODA) USD 4–10 3. Natural infrastructure USD 105–139
Figure 6. 4. Biodiversity offsets USD 6–9 4. Green financial products USD 31–93
Current and future global 5. Sustainable supply chains USD 6–8 5. Nature-based solutions and carbon markets USD 25–40
biodiversity finance and 6. Green financial products USD 4–6 6. Official development assistance (ODA) USD 8–19
the global biodiversity 7. Philanthropy and conservation NGOs USD 2–4 7. Sustainable supply chains USD 12–19
conservation financing gap 8. Natural-based solutions and carbon markets USD 1 8. Philanthropy and conservation NGOs USD 3–8

92 93
 Future scale of finance
Looking ahead to 2030, the global annual financial flows towards
biodiversity conservation could be scaled-up to a total USD 449–640 billion.
Where exactly total expenditures fall in that range will be driven primarily
by effective policy reforms and incentives to catalyse the growth of private
and public-private investments for biodiversity conservation.
Figure 6 shows the high-scale potential growth of global biodiversity
finance projected to 2030, representing an increase in the order of 3.6–4.5
times 2019 annual financial flows. This figure shows the current and future
scale of biodiversity finance. The size of each bar indicates the average
amount that could be raised through each mechanism.
Notwithstanding the potential increase in global biodiversity finance flows,
the estimated annual financing gap for global biodiversity conservation by
2030 would be USD 273–327 billion (Deutz et al 2020). This means that
the global biodiversity funding need would likely not be met by 2030, unless
governments can also commit to scale up the global reform of harmful
subsidies to biodiversity and the private sector improves financial risk
management practices towards biodiversity conservation (see chapter 6).
An estimated 87% of current finance comes from domestic and
international public finance. Finance under domestic public budgets,
development assistance (ODA) and philanthropy could be scaled up to
USD 219–321 billion per annum by 2030. This could be achieved through
increased political will and policy reforms that focus on increased
biodiversity conservation funding. This increase will primarily come from
national government budgets, but also from other categories of ODA
providers committing to double aid with an increased focus on the
efficiency of biodiversity finance. There is already precedence for
governments meeting these commitments. The CBD recorded that
bilateral ODA for biodiversity increased by 76% from 2015 to 2018
compared with 2006 to 2010, with 10 parties effectively doubling their
ODA contributions (CBD 2020a).
As biodiversity finance is scaled up, by 2030 more resources (50–51%)
are likely to come from innovative public-private mechanisms such as
biodiversity offsets, natural climate solutions and carbon markets, as well
as mechanisms to scale private sector investment such as sustainable
supply chains and green financial products.
Biodiversity offsets offer an avenue through which impacts to biodiversity
from development activity must be paid for and directed to conservation.
There are currently 42 countries with established biodiversity offset
94
policies. However, only nine of these countries have implemented a
significant number of offset projects. If national policies and international
standards are strengthened and enforced in these 42 countries, biodiversity
offsets have the potential to address 2.9 to 11.6 million ha of residual
adverse development impacts annually and to generate USD 42–168 billion
in conservation funding per year by 2030.
For mechanisms such as natural climate solutions and carbon markets,
green financial products, and sustainable supply chains, arguably the
most effective form of support would be the application of government
effective regulation and policy to catalyse private investment.
Natural climate solutions and carbon markets, can be scaled up to USD
25–40 billion per annum if investments in natural climate solutions are able
to increase by USD 22.9–34.3 billion, REDD+ programmes increase by USD
2.7 billion, and state and national carbon market compliance programmes
from Australia, Canada, Colombia and the United States increase by USD
1.2–2 billion. The growing demand for credits for offsetting carbon is already
visible with the transactions on the voluntary carbon markets reaching
a seven-year high in 2018. As more companies and governments commit
to net-zero targets, a continuous demand should arise for credits from
conservation, restoration, and improved management of forests, wetlands,
grasslands and agricultural lands. Some USD 22.9–34.3 billion could be
driven by governments with nationally determined contributions that
incorporate natural climate solutions as part of their overall climate goals.
Today, two thirds of all countries have included natural climate solutions
as a mitigation or adaptation strategy in their nationally determined
contributions, although natural climate solutions currently receive just
6% of public climate mitigation funding. The potential contributions from
the Chinese Certified Emissions Reductions for the energy sector and the
Carbon Offsetting and Reduction Scheme for the International Aviation
sector could potentially increase the estimated USD 25–40 billion by
mainstreaming investments to include forest and land-based carbon
emission reductions. The new Chinese government carbon-neutral
commitment by 2060 is an ambitious but critical pledge by a country
that is the world’s largest carbon dioxide emitter, with 28% of the global
carbon emissions (Hook 2020).
One of the key areas of growth will be in green financial products, through
green debt products such as green bonds, green loans, and sustainability-
linked loans. The size of the overall global bond markets increased from USD
87 trillion in 2009 to over USD 115 trillion in mid-2019, driven by the growth
of bond issuance in the public (47%) and private non-financial sectors (14%),
primarily in emerging markets. Of this, green debt represents a small
(<0.5%) segment of the global bond markets. Of the USD 257.7–271 billion
95
 green bond issuances in 2019, only USD 1.6–3.3 billion (<0.7%) of
investments were allocated toward biodiversity conservation while 81%
targeted the energy (31%), buildings (30%) and transportation (20%)
sectors. By 2030, USD 19–76 billion could be driven by regulation and
international standards for allocating financing to biodiversity conservation
through green debt products, which could follow from a push to
mainstream biodiversity conservation through investments in renewable
energy, transportation, agriculture and other assets (Deutz et al. 2020).

Finally, the historical impact of global supply chains on biodiversity has been
largely negative, driven by land-use change and unsustainable agricultural,
forest, fisheries and other practices associated with commodities.
However, a shift towards more responsible supply chain management
practices offers an opportunity to generate revenue from sustainable
commodities production and/or avoid harm by improving sustainability
practices (see chapter 7). The scale of certified sustainable commodities
markets’ direct contribution to biodiversity conservation is expected to
increase to at least USD 12–19 billion annually by 2030.

96 97
 Deliver

5
98 99
 This chapter explores the mechanisms that deliver finance for biodiversity
conservation. As funding increases, the public and private sectors will
need to use appropriate “measures that can enhance cost-effectiveness
and efficiency in budget execution, achieve synergies, align incentives,
and favour a more equitable distribution of resources” to deliver funds
targeted at closing the biodiversity funding gap (UNDP 2018).
The state of play
Currently, finance for biodiversity is delivered in a fragmented manner with
limited coordination among international, national, and local investors and
project managers. National governments, with the help of multilateral or
bilateral aid organisations, are the main delivery networks for conservation
finance. Moving forward, all sectors of society should work together to
ensure that countries‘ cross-sector biodiversity spending is on track to
achieve national goals, and that national, private and civil society providers
of conservation finance minimise the gap between their actual allocation
of financing and their budgeted plans.
Government or official development assistance (ODA) funds that national
governments receive for conservation, can be delivered to projects
through grants, concessional debt or microfinance. Public financing
can also be channelled from earmarked public budgets or ODA funds or
facilities dedicated to conservation. Additional delivery mechanisms for
conservation finance can be products for allocating private and/or public
budgets to be delivered to conservation projects, for encouraging
additional revenue generation, or for better monitoring of conservation
finance. Governments, ODA providers, NGOs and a small number of private
sector donors and lenders have provided catalytic capital support through
concessionary loans, guarantees or other forms of assistance that enable
investments in biodiversity conservation.4 Multilateral ODA provided by
organisations such as the GEF have played a critical role in de-risking private
investments in conservation through concessionary loans conditional on
biodiversity or capacity-building outcomes, grants, and technical assistance
for national governments. Either public managers or recipients of funds, as
well as other sources for conservation financing, can ensure their delivery
through using financing structures such as results-based or conditional
payments to ensure that investments reach their desired outcomes. The
private sector can also play a greater role in ensuring the smooth delivery
of capital to impactful conservation projects as their awareness of business
risks related to biodiversity loss increases.
Catalytic capital is defined as debt, equity, guarantees, and other investments that accept disproportionate risk and/
4
or concessionary returns relative to conventional investments in order to generate positive impacts and enable third-
party investment that otherwise would not be possible (Tideline 2019).
100
A brief history
Delivery of conservation finance has historically been and should continue
to be aligned to countries’ National Biodiversity Strategies and Action Plans
(NBSAPs), which signatories of the Convention on Biological Diversity
(CBD) are required to develop and integrate into relevant sectoral or
cross-sectoral plans, programmes and policies. To date, 191 signatories to
the CBD have developed at least one NBSAP. Initial submissions lacked
specified targets and desired results, which might have improved countries’
budgeting processes. Furthermore, out of the 170 NBSAPs submitted and
revised under review, only 25 countries have either drafted or implemented
resource mobilisation strategies within their NBSAPs (CBD 2020b).
Another CBD initiative that provides guidance on delivery for conservation
is the CBD Programme of Work on Protected Areas (PoWPA), created at
COP 7 in 2004. This initiative enabled countries to identify gaps in national
protected area networks and establish an ecologically representative
network of protected areas. A total of 108 countries have submitted their
PoWPA action plans, and since 2004, thousands of new protected areas
have been established in connection with the PoWPA process.
Today, we see a more collaborative approach that builds on the strengths
of both public and private sectors and seeks to use novel financial
mechanisms. The term ‘blended finance’ refers to “...the strategic use of
public finance for the mobilization of additional finance towards sustainable
development” (OECD 2019a), often by combining public and philanthropic
capital with private, return-seeking capital into the same financing. The
goal is to leverage mission-driven capital into development by reducing
private investors’ risks and/or improving their returns, thus changing the
risk-return profile of an investment just enough to meet profitability
requirements of private investors. Delivery mechanisms that help with risk
mitigation are proving to be critical for biodiversity finance – 46% of all
projects, 67% of all bonds or notes, and 12% of all funds issued or launched
from 2017 to 2019 used guarantees or risk insurance (Convergence 2020).
Between 2012 and 2015, blended finance structures used by development
finance institutions mobilised USD 81 billion in private financing (OECD
2018a), with most of their transactions focusing on renewable energy,
financial services and agriculture (OECD 2020a). By comparison, blended
finance channelled only an estimated USD 3.1 billion to biodiversity from
2000 to 2018 (Convergence 2019).
101
 Criteria 1. Level
The diagram below presents a framework that can be used to analyse and The administrative level at which finance for biodiversity and ecosystem
understand the different options for the delivery of biodiversity finance. services is delivered is an important consideration for all countries.
The framework uses five criteria as follows:
Options:
1. Level: At what level will funding be delivered?
2. Leverage: How much new investment can this mechanism
enable that wouldn’t otherwise be possible?
3. Theme: What activities can be financed?
4. Performance-based: Is the provision of funding linked to National Subnational Project
performance?
5. Direct or mainstreaming biodiversity: How will revenue National-level delivery mechanisms typically involve the integration of
be generated and delivered? financial resources into national budgets, using the government’s existing
financial architecture to implement a programme at a national level.
Table 6. Deliver better – principles and criteria
Subnational-level delivery mechanisms provide funding for the
Principle Effective / Efficient Target Appropriate coordinated planning of conservation at the district, region and
province levels, or other similar subnational jurisdictions.
Criterion Level Leverage Theme
At what level (national, How much additional What type of activities Project-level might not be integrated into government levels and might
subnational or project) investment can this and investments are instead deliver capital to other public and private entities for conservation
is biodiversity finance mechanism catalyse? appropriate for this activities within specific locations and time-frames.
likely to be delivered? particular mechanism?

Performance-based Direct / Mainstreaming 2. Leverage

Is the provision of
public funding linked
to specific outcomes
or performance?
Will funds be delivered directly
into biodiversity conservation?
Or mainstreamed through
other sectors with biodiversity
co-benefits?
The leverage criterion describes the degree to which a delivery mechanism
may facilitate private and public-private investment and, in doing so, may
enable financing activity that would otherwise not have been possible.
Options:

The following pages provide an explanation of these criteria and how they
can be used to understand mechanisms for the delivery of biodiversity
finance. A further consideration for the delivery of finance is how much
biodiversity is delivered per unit cost, that is, its efficiency. These
considerations, although not visually represented with an icon, are
discussed for each mechanism.
Low Medium High
Delivery mechanisms that have low leverage may not attract additional
private or public investment toward biodiversity, but may support better
delivery, efficiency and effectiveness of existing funds. Mechanisms that
have leverage, such as political risk insurance or a repayment guarantee
to protect private investors, have the ability to transform a financing
transaction with little or no appeal for investors into a significant financing
with large amounts of private capital for clear and convincing benefits
to biodiversity.

102 103
 3. Theme
The theme criterion outlines the activities that would be appropriate
to receive finance under a given delivery mechanism.
Options:
Conservation Sustainable Capacity Technology
use building transfer
Biodiversity and ecosystem service interventions can be grouped
into four themes:
Conservation refers to the deployment of capital, or creation of activities
for the deployment of capital, to protect ecosystem services and the
habitats that create them.
Sustainable use focuses on the provision of ecosystem goods, but in
such a manner that the provision of ecosystem services and conservation
of biodiversity are maintained (for example, agroforestry, sustainable
commodities).
Capacity building activities focus on supporting countries and
communities in their ability to carry out biodiversity and ecosystem service
protection. It can include activities that support improved governance
of protected areas market development and certification standards
for sustainable supply chain commodities.
Technology transfer refers to the improvement of technical knowledge
related to ecosystem conservation and the sustainable use of natural
capital and genetic resources.
104
4. Performance-based
This criterion answers the question of whether the provision of funding is
based on performance related to biodiversity conservation and ecosystem
service provision.
Options:
Non-performance- Performance-
based based
To a certain degree, all delivery mechanisms are related to performance
in the sense that there is an expected outcome from funding. For example,
grants given in support of capacity building activities are based on the
expected result that capacity will be built. Performance-based delivery as
discussed here, however, means that delivery of finance is conditional upon
the already executed or expected ecosystem services and/or biodiversity
conservation. While non-performance-based budgeting is still expected to
yield some positive results through financial incentives, performance-based
delivery explicitly ties elements of contractual conditionality for payments.
Performance-based mechanisms can drive desired outcomes either at a
resource allocation or payment level. We discuss here two subsets of
performance-based delivery: results-based budgeting and pay-for-success.
5. Direct or mainstreaming biodiversity
Delivery mechanisms have the potential to either enable direct biodiversity
conservation expenditures or to mainstream biodiversity conservation
through creating the right incentives for investors to consider the potential
biodiversity co-benefits of their projects. Mainstreaming biodiversity
conservation requires including biodiversity conservation in the design
and implementation of mechanisms and/or projects, thus ensuring that
investors gain biodiversity co-benefits from their activities.
Options:
Direct biodiversity Biodiversity mainstreaming
investment investment
105
 A guide to better delivery
Unconditional grants
LEVEL
A grant is defined as a transfer made in cash, goods or services for which no
repayment is required (OECD 2009). Given the difficulties in capturing the
benefits that arise from the global public good aspects of biodiversity and
LEVERAGE
ecosystem services, a large proportion of biodiversity finance transactions
are funded, in whole or in part, through grants. While grants could be used
for a wide variety of biodiversity needs, financial resources that are
delivered as grants are likely to be limited, so their use should be targeted.
Furthermore, despite the fact that grants do not require repayment, their
THEME provision is often contractually contingent upon the recipient of the grant
being able to show proof of outcomes, or the recipients being amenable
to being evaluated and receiving technical assistance.
Grants are typically targeted towards activities that provide a public good
that has no (or negative) financial returns for the recipient. Grants have
DIRECT OR MAINSTREAMING
BIODIVERSITY
the potential to fulfil an important role in supporting other forms of finance
delivery. Likewise, they may fund much-needed capacity building and
institutional strengthening and, as biodiversity conservation projects
are implemented, grants may afford project managers the ability to make
substantial progress in the early stages of development without
financial risks.
Grants can help stimulate other financial flows as well if they are used
for providing technical assistance. The GEF, for example, leveraged about
USD 6.3 from the private sector in green blended financing for every USD
1 GEF invested in 2013–2014. This includes its Risk Mitigation for Land
Restoration project, which attracted USD 120 million in co-financing in
addition to GEF’s USD 15 million initial investment (GEF 2020).
106
Performance-based payments
LEVEL
Performance-based payments can incentivise sustainable land-use
practices that closely align the interests of service providers, clients or other
beneficiaries. Payments are awarded based on three types of conditionality: LEVERAGE
directly ex post for a unit of ecosystem service or biodiversity verifiably
provided (for example, payments for tonnes of carbon sequestered),
directly ex ante for a proxy for ecosystem services or biodiversity (for
example, hectares of forest conserved), or indirectly for the implementation
of policies and measures that protect ecosystems (for example, payments
THEME
to support capacity building or the costs of enforcing laws against timber
extraction). The relative efficiency of the latter two approaches depends on
the strength of the relationship between the proxy measure or policies and
the level of ecosystem service or biodiversity that those actions provide.
Results-based budgeting can inform performance-based payments
through allocating payments to predetermined objectives and expected
results for national budgets. The development of such budgeting, which
PERFORMANCE-BASED
is a more ‘advanced’ type of conservation budgeting, can help justify
resource requirements by linking them to expected performance criteria
(UNDP 2018).
Pay-for-success (PFS) is a subset of performance-based payments where
investors are paid back only after the project achieves certain agreed DIRECT OR MAINSTREAMING
BIODIVERSITY
outcomes (Fry 2019). As projects are implemented, outcomes are
measured against key impact metrics as agreed between the parties prior
to the implementation phase. The beneficiaries of the project, usually
governments, repay investors in relation to these outcomes. As a result,
investors are rewarded for performance while beneficiaries are protected
against project failure by making reduced payments (or no payments at all)
in the event of under-performance (Flanagan and Woolworth 2019).
Importantly, PFS contracts can partially or completely transfer the financial
risk of under-performance from public budgets to private investors, who
assume the upfront transaction costs of negotiating, structuring and
documenting the deal, and hiring the service provider. Financial flows
in PFS arrangements, therefore, depend on the objective assessment
of project performance metrics against contractual terms (Knoll 2019).
107
 Concessional debt
LEVEL
Case study

Coastal marine Concessional loans are a form of lending extended by creditors at below-
biodiversity management market terms with the aim of providing liquidity to borrowers that wouldn’t
be able to afford market-rate debt. They are often characterised by
results-based budgeting
LEVERAGE
discounted interest rates and favourable repayments terms, and, in some
cases, can be convertible to grants. In the event that a conservation project
in Guatemala cannot access commercial debt, a concessional loan may enable the
borrower to access funding well before it is able to generate enough

revenue to service the debt (European Investment Bank 2018).

In Guatemala, five municipal governments THEME
Concessional debt is an important delivery tool for conservation because
partnered with UNDP BIOFIN to implement
it allows conservation projects to receive funding prior to or in absence of
a pilot results-based budgeting approach for
sufficient revenue generation. It can also increase other lenders’ willingness
coastal marine biodiversity management.
to offer credit to borrowers because it lowers the total amount of funds
Through this approach, the municipalities
needed and the risks associated with large amounts of debt.
sought to institutionalise budgeting processes
at the local level that incorporate biodiversity
Concessional debt may either be extended to support ecosystem-friendly
development and protection outcomes.
activities or the element of concessionality can be made dependent on
A High-Level Technical Direction Committee DIRECT OR MAINSTREAMING
the delivery of ecosystem services and biodiversity conservation. Similar
united decision makers across multiple public BIODIVERSITY
to guarantees, concessional loans can effectively reduce the overall interest
agencies in Guatemala to direct the efforts to
rate of a financing if other lenders provide market-rate loans. Concessional
further institutionalise the allocation of public
loans are most suitable for investments that have at least some level of
resources for coastal marine biodiversity through
financial return, while still being below a threshold that would attract
results-based budgeting processes. To achieve
commercial investment (Parker et al. 2009). As such, concessional loans
the desired objective of increasing budget
can be used to support projects in nascent biodiversity and ecosystem
allocations to coastal marine biodiversity
service markets, and where countries need financial support to fund
management, the partnerships executed
their ecological transitions. Enterprise challenge funds can distribute
an intervention strategy focused on building
concessional finance by subsidising private investments in ecosystem
capacity for results-based budgeting, increasing
protection where some amount of commercial viability is predicted to
municipal awareness on the management of
come alongside conservation activities (UNDP n.d.).
coastal marine biodiversity and creating avenues
to exchange experiences among municipal
The International Development Finance Club has noted that concessional
governments. In using this three-pronged
finance has already played a larger role in green financing in 2018 for
approach, an initial budget allocation of
international organisations compared with previous years (IDFC 2019).
USD 297,300 for Coastal Marine Biodiversity
National development banks, multilateral development banks and
Management was assigned by the five
development finance institutions thus have the potential to extend these
municipalities in 2018. In 2019, the budget
trends to investments in protecting biodiversity, which currently only
allocation was increased by 53% to USD 456,300
represent 1% of climate-related multilateral development bank financing
(UNDP 2019a).
(World Bank 2019a).

108 109
 Green microfinance
LEVEL
Microfinance is the provision of financial services (credit, savings and
insurance) to poorer households and communities or small- and medium-
LEVERAGE sized enterprises that are unbanked, that is, not served by a bank or similar
financial institution. Microcredit involves offering small loans to groups or
individuals as working capital to establish or scale-up a business or, in some
cases, to help build up assets or protect against risks (Agrawala and Carraro
2010). Lack of financing is often a major hurdle for poorer communities to
THEME transition to more sustainable livelihoods.
Microfinance institutions (MFIs) have seen massive growth over the last
decade. As of 2018, 140 million borrowers used MFI services, compared
with fewer than 100 million in 2009 (Guichandut and Pistelli 2019).
Amounts borrowed reach into the hundreds of billions of USD, with an
average growth rate of 11.5% from 2013 to 2018 (Guichandut and Pistelli
2019). The bulk of microfinance transactions occur in South Asia, Latin
PERFORMANCE-BASED
America and the Caribbean. The Indian microfinance industry achieved
42.9% year-over-year growth, for example, in the first quarter of 2020 in
comparison to 2019 (Economic Times 2019).
Microcredit currently constitutes the best-developed microfinance
mechanism for delivering biodiversity finance and so is the focus here.
DIRECT OR MAINSTREAMING
BIODIVERSITY
By financing this transition, as opposed to directly financing conservation,
lenders hope that reconversion to unsustainable activities upon the
maturity of the loan is less likely. For example, microcredit can support
communities whose income streams have been impacted by protected
areas through funding their transitions to more environmentally friendly
economic activities.
The potential of microlending to create positive outcomes for biodiversity
and the environment has yet to be fully realised. Microcredit can help
low-income families in biodiversity hotspots manage through economic
shocks, which might otherwise encourage them to resume unsustainable
practices that may be more profitable in the short term. However,
microfinance is still developing, and to focus it on environmental and
biodiversity concerns often requires the collective efforts of more than
simply the microfinance institutions.
110
Private protected areas
LEVEL
Private protected areas (PPAs) can contribute to biodiversity stewardship
by supplementing the national and subnational networks of protected
areas managed by governments, resulting in a larger area under protection LEVERAGE
overall. They may also foster connectivity of protected areas, facilitating
the movements of migratory animal species as well as gene flow of non-
migratory animal species and of plants. Also, PPAs may conserve types
of habitat and microhabitat not typically represented in national and
subnational networks of protected areas. Finally, PPAs may involve new
THEME
stakeholders not traditionally associated with protected area management
(Gloss et al. 2019).
According to IUCN, PPAs must meet the general conservation standards
of protected areas, include recognisable and durable protection, and be
DIRECT OR MAINSTREAMING
governed by a private or non-governmental entity. There is no reliable data BIODIVERSITY
on the number or extent of PPAs globally, largely since many governments
do not define, recognise or regulate PPAs. Still, certain governments have
presided over remarkable growth in PPAs in recent decades. Brazil, for one,
had an 80% increase in PPA establishment from 2000 to 2010, most of
them within the highly endangered Atlantic Forest (Mata Atlântica), which
lost well over 90% of its forest cover following Brazil’s settlement by
Europeans (Stolton et al. 2014).
Unlike in public conservation areas, managers of PPAs can face substantial
challenges to their ownership or management rights. In order to provide
some measure of predictability and stability to PPAs, a variety of countries
regulate private conservation activities. Some countries include
conservation concessions in national law, which grant non-state actors
the exclusive management control of state-owned land that was not
previously under conservation management, usually for purposes of
biodiversity conservation and scientific research. In cases such as these,
where the managers are not the owners of the land, thoughtful regulation
of this conservation mechanism is particularly important (Stolton et al.
2014). Expanding protected areas through PPAs is critical to realising CBD
targets and biodiversity goals. A study in 2020 showed that 100% of the
United States’ endangered tetrapod species could be protected if
protected areas are expanded into key public and private lands (Clancy
et al. 2020). However, this will require thorough coordination between
landowners, especially at the subnational level.
PPAs can also be used to protect the property rights of indigenous
communities, who in turn require funding for the conservation activity they
may undertake in PPAs that are protected for the sake of conservation.
111
 Conservation easements and tax
LEVEL
Case study

credits for land conservation Biodiversity tax

A conservation easement is a voluntary agreement between a private
incentives for South
Africa’s protected areas
LEVERAGE
landowner and a third-party actor, such as a land trust or government
agency, under which the third party acquires a set of ownership rights
in a property from the landowner. These easements may restrict the
South Africa, considered one of the world’s
landowner’s right to develop the property in a variety of different ways.
megadiverse countries, identified protected area
Some easements may completely restrict any type of development while
THEME expansion as a key tool to ensuring the long-term
others may allow additional construction with restrictions on building size
sustainability of its biodiversity and the health
(Rissman et al. 2007). The terms of the easement are legally binding and
of its ecosystems. Recognising the importance
often are granted by the landowner in exchange for direct payments or
of biodiversity conservation for its social and
result in favourable tax treatment (Rissman et al. 2007; Gloss et al. 2019).
economic development, the South African
Crucially, the transfer of rights under a conservation easement
government launched the Fiscal Benefits Project
PERFORMANCE-BASED is permanent.
Section 37D to pilot private protected areas and
ultimately provide a tax incentive for landowners
Conservation easements are a highly flexible mechanism, allowing
declaring their properties protected areas
landowners and third parties to negotiate which use and development
(Stevens 2018).
rights are transferred pursuant to the easement and which rights are
retained by the landowner. As a result, individual easements tend to be
DIRECT OR MAINSTREAMING With roughly 75% of South African land under
BIODIVERSITY heterogeneous, even within the same jurisdiction (Rissman et al. 2007).
private ownership in 2018, the national
Conservation easements are well suited for use in biodiversity protection
government sought to engage landowners to
activities in those jurisdictions in which they exist under the law. In the
participate in biodiversity conservation. Prior
United States, conservation easements are one of the most effective
to the Fiscal Benefits Project, landowners were
and most widely used mechanisms for land protection. The US National
solely responsible for the management and
Conservation Easement Database has mapped an estimated 60% of
costs associated with maintaining protected
all easements in the United States, currently representing over 130,000
areas. Through its tax incentive approach, the
easements and totalling 24.7 million acres in 2020.
government of South Africa offered tax breaks
for those who were willing to manage and
declare protected areas within their property.
With this tax incentive, South Africa enabled
increased cash flows for protected area
management and provided financial recognition
to private landowners that engaged in long-term
conservation, such as ecotourism hubs and
private game reserves. Overall, the tax incentive
is estimated to mitigate the biodiversity finance
gap in South Africa by 10% (Stevens 2018).

112 113

Case study
Ecotourism
Ecotourism is a form of tourism that involves
travel to natural areas, many of them protected
areas and some quite remote, in a manner that
supports the conservation of the natural area
and is sensitive to the needs of, and potential
impacts on, nearby communities (UNEP, 2002).
Since ecotourism is highly dependent on local
biodiversity quality, ecotourism delivers a
portion of its revenues to proper biodiversity
management, and also encourages tourists to
donate to wildlife protection. Community-based
tourism also encourages locals to incorporate
conservation at the community level to protect
their mode of income. Another aspect of
ecotourism that distinguishes it from ordinary
tourism is that, as it is the stated purpose of most
ecotourism operations to benefit the areas where
they operate, ecotourism depends on the implicit
or explicit consent of local communities and their
leadership. In terms of biodiversity, bringing
tourists into previously undisturbed habitats
can negatively affect the local flora and fauna,
but this may be offset (at least in part) by tourist
fees that directly benefit biodiversity.
Despite these impacts, there is evidence that
ecotourism fosters participant engagement
in conservation practices (Massingham, 2019).
The way in which an ecotourism package is
managed affects the way that resulting tourists
engage with conservation, whether through
behavioural changes or policy support.
114
Guarantees
LEVEL
Ecotourism is also highly context dependent.
Ecotourism hubs within Chinese and Cambodian
forests have been successful at reducing
Guarantees are agreements in which a guarantor agrees to cover the loss,
deforestation, but the same hubs in the
either in full or in part, of a third-party financing transaction in the case
Himalayas showed no change (Brandt et al.,
of non-repayment or loss of value (Johnston 2019). This type of instrument LEVERAGE
2019; Lonn et al., 2019). In regions of high
is often used by development finance institutions and concessionary
deforestation pressure, ecotourism often
funders to provide credit support to projects that otherwise may be
improves forest conservation. However, in
unable to secure private investment. Through the use of a guarantee,
regions of low deforestation, ecotourism may
the guarantor provides explicit financial backing to a loan or equity issuer
actually stimulate forest loss due to bringing
and subsequently de-risks transactions where the risk-return profile is
tourism into pristine habitats. Regardless, THEME
initially unappealing to private investors. Through the provision of a
ecotourism is on the rise and has the potential
guarantee, a transaction is able to attract capital at more favourable rates,
to mitigate biodiversity loss.
often making projects viable. Guarantees can address challenges faced
by biodiversity conservation project developers and are likely to result in
greater acceptance in the use of the tools of private finance in biodiversity
protection. Ultimately, these factors are likely to increase the generation
of funding to support biodiversity.
DIRECT OR MAINSTREAMING
A review of blended financing transactions between 2017 and 2019
BIODIVERSITY
revealed that guarantees were used in 33% of transactions and mobilised
the greatest amount of private capital investments when compared
with other blended finance instruments (Convergence 2020). The use
of guarantees can help attract private investment in conservation by
improving the risk-return profiles of projects related to biodiversity
conservation. In cases where investments in biodiversity protection are
deemed too risky, the use of guarantees from conservation focused entities
can help catalyse private capital investments by reducing their down-side
risk. Guarantees have mainly been used to mobilise capital from financial
institutions, with 50% of blended finance transactions seeking capital from
this type of investor using guarantees (Johnston 2019). However, they can
also be used to catalyse investments from asset managers, corporations
and investment funds.
Historically, guarantees have been particularly prevalent in the energy
and infrastructure sector. Even so, there have been other successful case
studies of guarantees being used for agricultural projects and sustainable
land-use initiatives that can have positive biodiversity impacts
(Guarnaschelli 2018). Specifically, there is potential to use guarantees
to diminish funding risk by reducing the impact of credit and political
context concerns that might prevent private capital from flowing toward
biodiversity conservation projects.
115
Case study
Conclusion
USAID loan guarantees The mechanisms discussed in this chapter can enable the effective delivery
for Mirova’s Climate Fund of generated capital. However, different delivery mechanisms will have
varying levels of efficacy depending on the generation mechanisms. Some
delivery mechanisms make revenue generation mechanisms, and their
In 2014, as part of the UN pledge to curb
related investments in biodiversity conservation, more viable. Many of the
deforestation, USAID’s Development Credit
delivery mechanisms described in this chapter such as performance-based
Authority committed to a 10-year loan guarantee
payments or concessional debt have the potential to incentivise investment
worth USD 133.8 million to Mirova‘s climate
from the private sector. Other delivery mechanisms are able to encourage
fund ACF (USAID 2015), which supports projects
more private investments in the short term by decreasing investment risks.
on REDD+, sustainable land use, and other
It is important to differentiate between generation and delivery mechanisms
conservation and sustainable use activities.
that invest in biodiversity directly and those that cater more towards
With USAID’s loan guarantee, USAID assumes
mainstreaming biodiversity investment. For example, in the context
50% of risk in ACF REDD+ investments and
of mainstreaming biodiversity investments, delivery mechanisms can
further reduces other risks within the ACF, such
incentivise the allocation of investment proceeds towards biodiversity
as carbon price volatility. USAID’s support not
conservation interventions through green bond investments in renewable
only helps Mirova Natural Capital contribute to
energy or agriculture.
forest management through the ACF but also
helps attract large-scale private investment into Table 7. Better delivery: what could work where?
the fund. After the loan guarantee’s approval,
ACF raised USD 120 million in its second Generate revenue Governmental Biodiversity Natural Green financial Green financial
round of financing, including EUR 25 million budgets and offsets infrastructure products – products –
taxation Green equity Green debt
from the European Investment Bank
(REDD-Monitor 2016). Deliver better

Over the loan guarantee’s 10-year lifetime, Unconditional grants

Mirova projects that ACF REDD+ investments
will reduce carbon emissions by 100 million Performance-based
payments
tonnes CO2eq through tropical forest protection
projects (USAID 2015). If successful, USAID’s Concessional debt
loan guarantee will be an example of how a large
organisation willing to use its credibility and Green microfinance
balance sheet can facilitate financing activity
Private protected areas
that might not or would not have occurred
without its support. This is achieved at negligible Guarantees
upfront cost to itself with a longer-term cost only
in the event of a default by the guaranteed party. Direct biodiversity investment Mainstreaming biodiversity investment
The transaction also illustrates how sustainable
finance practitioners can leverage a guarantee The diagram above illustrates how the delivery mechanisms described in this chapter can play
to secure substantial commitments of private a catalytic role for, and work more efficiently with, certain generation mechanisms, based on
capital for biodiversity conservation. the available track records of biodiversity conservation investments. A darker colour indicates
greater potential for a particular delivery mechanism to catalyse financing in the corresponding
generation mechanism.

116 117
 Realign

6
118 119
 Realigning expenditures involves a series of policy, fiscal, business and
financial measures that reorient existing capital flows to activities that
reduce negative impacts or increase positive outcomes for biodiversity.
Public policy measures include reforming, redirecting and removing
subsidies harmful to biodiversity by governments. Private sector measures
include environmental and social risk management practices, including
sustainable supply chain finance, and environmental and social impact
assessments. Although scaling mechanisms for generating revenue for
positive biodiversity outcomes is critical (see chapter 5), the estimated
USD 598–824 billion global biodiversity financing gap will not be closed
by 2030 unless governments and businesses prioritise the reform of
harmful subsidies and strengthen environmental and social risk
management measures.
The state of play
Approximately USD 44 trillion of annual economic value generation – over
half the world’s GDP – is moderately to highly dependent on nature and its
ecosystem services (WEF 2020a). Three of the most nature-dependent
industries – the construction, agriculture, and food and beverage sectors
– represent over 15% of global GDP, while other moderately dependent
industries generate another 37% (WEF 2020b). The emergence of the
COVID-19 pandemic has evidenced how other relevant industries, including
aviation and hospitality, can be extremely exposed to biodiversity loss
risks, in this case, associated with the outbreak of a zoonotic disease.
The combination of businesses’ dependencies on biodiversity and the
continuous degradation of ecosystems, has positioned loss of biodiversity
as a primary risk to global economies. The World Economic Forum’s
Global Risk Report in fact identified biodiversity loss as one of the top
five global risks in both likelihood and impact (WEF 2020b). Paradoxically,
governments annually spend five to seven times more on subsidies, some
of which are directly harmful to biodiversity, than the estimated annual
USD 124–143 billion of global finance flows to biodiversity conservation.
The threat of biodiversity loss should stimulate governments and
businesses to identify and reform harmful policies and practices in
order to reverse biodiversity loss. But this will require public and private
organisations to simultaneously analyse how their operations are materially
dependent on biodiversity and take action to mitigate their negative
externalities (OECD 2019a).
In recent years, a growing number of tools to quantify an organisation’s
impact on biodiversity have become available. Much as in the way
governments use GDP as a metric to measure their economic production,
governments are now able to use natural capital assessments to better
120
understand and measure the contribution of natural capital towards their
national policy objectives. From 2014 to 2016, for example, the Netherlands
developed the Natural Capital Atlas to monitor geographic information on
ecosystem services and natural capital within the country’s borders (van
Bodegraven 2018), creating a system of National Natural Capital Accounts
to map ecosystem services and their social benefits.
Recognising the interconnectedness of climate change and biodiversity
loss, businesses can similarly evaluate natural capital assets within their
respective spheres of influence, particularly in relation to their operations
and investment decisions. ENCORE is a tool developed by the Natural
Capital Finance Alliance and the UNEP Finance Initiative allowing financial
institutions to screen their portfolios for natural capital risks and integrate
them within their investment risk management procedures (ENCORE
2020). Another tool, the Integrated Biodiversity Assessment Tool, uses
the World Database on Protected Areas, IUCN’s Red List of Threatened
Species, and the World Database of Key Biodiversity Areas to assess how
certain activities may conflict with nature within areas of high biodiversity
value (IBAT 2019). In addition, the Natural Capital Protocol addresses a
business’s dependence on natural capital, with recent additions explicitly
addressing biodiversity dependence. A four-step process addresses how to
frame dependencies, pick the correct scope of analysis, choose the correct
valuation method and develop next steps (Natural Capital Coalition n.d.).
Biodiversity indexes that combine a range of measurements in a score can
be used as a baseline for companies setting up their science-based targets
(SBTs). For example, the Global Biodiversity Score, a corporate biodiversity
footprint assessment tool, uses the Mean Species Abundance index to link
a company’s economic activity to negative impacts on local biodiversity
and ecosystems. These indexes can be disclosed to investors or regulatory
agencies with specifics on how data was gathered and analysed, and the
data’s level of accuracy (Lammerant et al. 2020; CDC Biodiversité 2020).
Despite the availability and ongoing refinement of methods and tools,
policy implementation and enforcement still fall substantially short of
what is needed. Moreover, most of the tools available are directed towards
diagnostics, with little information available on how to effectively reform
and realign expenditures.
121
 A brief history
The Aichi Biodiversity Targets addressed the underlying causes of,
and possible remedies for, biodiversity loss, including the need for a
fundamental policy shift that leads the public and private sectors to
eliminate current and future drivers of biodiversity loss. Target 3 declared
that all “incentives, including subsidies, harmful to biodiversity are
eliminated, phased out or reformed in order to minimize or avoid negative
impacts,” to be replaced by “positive incentives for the conservation and
sustainable use of biodiversity” (CBD 2010a). Target 4 described the
collaborative role of the public and private sector to transform existing
business practices through “achieving or implementing plans for
sustainable consumption and production” (CBD 2018).
The broad consensus is that the international community has completely
failed to meet Aichi Target 3. According to the CBD, an overwhelming
majority of countries showed insufficient progress in implementing Target
3, with no significant changes in national policy and even, in some cases,
actions that moved these countries away from the objectives of Target 3
(CBD 2016). An assessment of Target 4 found comparable poor results, with
the majority of countries demonstrating insufficient progress. These results
are remarkable given the growing awareness of the risks that biodiversity
loss poses to our global economy, notably among multinational enterprises.
sector, with some arguing that the private sector now has greater
momentum than the public sector. But private sector progress on these
objectives is slow due to weak institutional frameworks, unsophisticated
methodologies and limited data collection or use. Many are calling for new
laws and regulations that level the playing field and provide the incentives
for all firms – and not just the early movers on sustainability initiatives –
to proactively manage biodiversity risk.
To respond to this capacity gap, WWF, the UNEP Finance Initiative,
UNDP and Global Canopy, along with other sponsors and investors, are
collaborating on the Task Force on Nature-related Financial Disclosures
(TNFD) to help align global finance with long-term sustainability objectives
such as those articulated in the Aichi Biodiversity Targets and the SDGs.
The TNFD is expected to build upon the work of existing initiatives,
including the Task Force for Climate-related Financial Disclosures (TCFD),
which established methodologies for assessing climate change-related
risks (TCFD 2020). The work of the TNFD should help firms understand
the scale of their exposure to biodiversity-related risks (Global Canopy
and Vivid Economics 2020) and provide a reporting and monitoring
framework that is adopted by financial institutions.

Notwithstanding the international community’s failure to meet the Aichi

Biodiversity Targets, there has been progress on other fronts. The Equator
Principles, a risk management framework for large banks in project finance
that was launched in 2003, helps financial institutions assess and manage
environmental and social risks and has been adopted by 105 financial
institutions from 38 countries (Equator Principles 2020). In September
2020, 26 financial institutions representing USD 3.5 trillion signed the
Finance for Biodiversity Pledge, which aims to commit financial institutions
to set targets for, report on and pressure world leaders to support actions
to limit and reverse nature loss (Burberl and Verberk 2020).The European
Union (EU) recently announced its EU Biodiversity Strategy for 2030,
which explicitly commits members to focus on biodiversity, set targets to
restore degraded ecosystems, protect 30% of land and oceans in Europe
and commit 10% of the EU’s long-term budget to biodiversity goals. The EU
strategy also explicitly calls on members to “phase out subsidies harmful
to biodiversity” and ban subsidies that exacerbate illegal, unreported and
unregulated fishing.

Developments such as these have led a number of observers to conclude

that both the public and private sectors are, at long last, moving decidedly
towards stronger biodiversity risk management standards than the public

122 123
 Criteria 1. Scale
The diagram below presents a framework to analyse and understand the The first step in understanding realignment options is knowing the scale
different options for the realignment of finance harmful to biodiversity. of financial resources that could be realigned towards positive biodiversity
The framework uses five criteria as follows: outcomes or away from negative impacts on biodiversity.

1. Scale: How much money could be realigned? Option:

2. Timeframe: Over what period of time?
3. Level: At what level is finance realigned? USD 12–20 billion
4. Direct or mainstreaming biodiversity: How will funds be realigned?
Numeric value in billions of USD
5. Reducing negative/improving positive: What is the purpose
of the realignment?
The scale criterion uses a numeric value (in billions of USD) representing
realignment of finance by 2030. The scale is represented by a range from
Table 8. Realign expenditures – principles and criteria
an estimated lower limit (which assumes narrow policy intervention) to an
upper-limit estimate (with significant policy intervention).
Principle Adequate Timely Target Motivation

Criterion Scale
How much
Timeframe
Over what
Level
Is finance
Reducing
negative/
2. Timeframe
funding period realigned through improving positive The timeframe describes the period when financing from a specific
could be of time? the private sector, Is realignment mechanism is likely to scale up.
realigned? national based on reducing
governments, negative or Options:
international improving positive
governmental impact to
organisations, biodiversity?
or multi-sector
collaborations? Short-term Medium-term Long-term
(<2025) (2025–2030) (>2030)
Direct /
Mainstreaming
Will finance be realigned to Another key component for realignment is that finance for biodiversity and
directly invest in biodiversity ecosystem services is realigned in a timely manner. Financial resources can
conservation, or will it be be realigned in either the short, medium or the long term (as defined above).
mainstreamed through investments
in other assets and sectors targeting
biodiversity co-benefits?

124 125
 3. Level
The level criterion describes whether financial resources will be realigned
by a mechanism implemented by the private sector, the public sector
(either nationally or internationally), or both sectors.
Biodiversity mainstreaming measures may achieve biodiversity co-benefits
through sustainable investments and resource allocation in sectors that are,
at least in relative terms, biodiversity-friendly, such as sustainable agriculture
and renewable energy.

Options: 5. Reducing negative/increasing positive

Options:

Private National International Multi-sector

Public Public collaboration
Reducing Increasing
Private sector realignment is defined as the reorientation of financial flows negative positive
through mechanisms exclusively implemented by private actors. Conversely,
public sector realignment is solely implemented by public entities. Many financial mechanisms exist that direct funds to industries and
activities harmful to biodiversity. The mechanisms described in this chapter

4. Direct or mainstreaming biodiversity

Negative financial flows to biodiversity can be directly realigned towards
investments that target positive biodiversity outcomes. On the other hand,
realignment mechanisms that mainstream biodiversity conservation are
those that include biodiversity conservation as a co-benefit amongst the
many other goals of sustainable investments in sectors such as sustainable
agriculture, sustainable infrastructure and renewable energy.
have the potential to reduce the level of expenditures that harm biodiversity
(reducing negative) or to increase the amount of financing that results in
positive biodiversity outcomes (increasing positive). Mechanisms such as
sustainable supply chains and accounting for biodiversity risk in financing
activities both reduce negative financial flows and increase positive financial
flows towards biodiversity.

Options:

Direct Biodiversity
biodiversity mainstreaming
investment investment

Direct biodiversity investments realign financial resources that have

negative impacts on biodiversity in such a way that they can yield positive
biodiversity outcomes, as in the case of funding that is shifted from
subsidising activities harmful to biodiversity and towards activities with
direct, positive biodiversity impacts.

126 127
 A guide to expenditure realignment Yield-based subsidies have underpinned food system growth but are, in
many cases, resource inefficient and can lead to soil degradation, depletion
of fish stocks and deforestation (Food and Land Use Coalition 2019).

Reform of harmful subsidies

Subsidies are unrequited government financial contributions given to
producers “on the basis of the levels of their production activities or the
quantities or values of the goods or services which they produce, sell
or import” (OECD 2001). Subsidies take many forms, including tax
exemptions, consumption support, government-funded research and
lowering the costs of inputs. A subsidy harmful to biodiversity is one that
harms biodiversity compared with the case where the subsidy does not
exist (OECD 2003).
Subsidies instead should incentivise biodiversity conservation and allow
producers the flexibility to implement environmentally friendly practices,
such as organic farming and integrated land- and water-use planning
(FAO 2019). Equally important is eliminating subsidies that encourage
illegal and unreported commodity trading, which is prevalent in fisheries.
In this case, support that lowers the costs of inputs (for example, fuel)
and vessel upgrades are the most likely to promote illegal, unreported
and unregulated fishing (Martini and Innes 2018).

Globally, governments use subsidies to support both domestic producers

and consumers with the goals of providing socio-economic benefits and
satisfying larger government objectives, such as reduced poverty among
farmers or affordable fuel for low-income groups (OECD 2017b). However,
many subsidies are under scrutiny for their deleterious effects on the
environment, particularly those in the agriculture, fisheries and forestry
sectors (OECD 2017b). International environmental agreements largely
support subsidies reform. Two primary examples are the Aichi Biodiversity
Targets, which advocated phasing out all harmful subsidies, and the SDGs
14 and 15, which many countries interpreted as calling for subsidy reform
(IPBES 2019; United Nations 2015). The EU Biodiversity Strategy for 2030
commits members to “require greater cooperation with partners [in]
phasing out of subsidies harmful to biodiversity” (European Commission
Communications 2020).

Subsidies are not inherently harmful to biodiversity and many subsidies

programmes could, in fact, be modified to improve the state of biodiversity
(See chapter 7). Harmful subsidies, on the other hand, may incentivise
behaviours such as land-use change, sub-optimal land management and
inefficient natural resource management like overfishing (IPBES 2019).
Reforming harmful subsidies requires careful planning to identify and
mitigate distortionary effects that risk disadvantaging some groups over
others and providing support to those projected to be most negatively
affected. Subsidies can also have unintended consequences despite
well-meaning intentions. A famous example is the indirect land-use change
impacts of biofuels, where more carbon emissions are released due to
expanding croplands for biofuels.

In terms of how subsidies should be reformed, the international consensus

is that subsidies should be decoupled from production levels (OECD 2005).

128 129
Learn more Reform is crucial in developing countries with

Why we need to reform

significant dependencies on agriculture, forestry
and fisheries. In 2019, subsidies in agriculture,

subsidies harmful
fisheries and forestry that are potentially harmful
to biodiversity amounted to an estimated USD

to biodiversity
Subsidies harmful to biodiversity not only result
in production practices detrimental to plant and
animal species, but they also create a vicious
cycle in which human activity degrades the very
natural capital assets upon which businesses’
profits depend. Agricultural production relies on
insect pollination and soil quality, both of which
require insect and flora biodiversity (PwC and
WWF 2020). However, agriculture is responsible
for most land-use change, which is the number
one contributor to environmental degradation
(IPBES 2019). Subsidies contribute to this
pattern of environmental degradation by
devaluating the cost of natural resources,
reducing incentives to innovate to more
sustainable methods, creating a reliance on
natural capital as opposed to other forms of
capital, and the like. Reforming subsidies harmful
to biodiversity therefore provides governments
with opportunities to make existing production
practices more sustainable both for social
and environmental benefits, and to mitigate
future risks associated with continuous
ecosystem degradation.
274–542 billion annually, exceeding the current
biodiversity finance by a factor of two to four.
If fossil fuel subsidies are considered in these
calculations, subsidies harmful to biodiversity
would be in the range of USD 670–1020 billion
per year, exceeding current positive finance by
a factor of five to seven.
Reforming all subsidies that are potentially
harmful to biodiversity by 2030 will be a
daunting challenge. Nevertheless, targeting
the reform of the most harmful subsidies will
significantly reduce annual negative financial
flows towards biodiversity. If this is achieved by
2030, governments could decrease expenditures
considered most harmful to biodiversity by USD
274–670 billion, an amount that dwarfs the
realignment potential of most mechanisms
(see Figure 7).

Reforming harmful subsidies can also lead

to new economic opportunities through the
introduction of new, more sustainable production
practices. Biodiversity richness naturally provides
pollination and pest control, and the gradual loss
of these key species has led to a 50% decrease
in agroecosystem benefits (Dainese et al. 2019).
Microscopic biodiversity within soils is especially
beneficial to soil health and prevents soil-based
diseases (Sánchez-Moreno 2018).

130 131
Figure 7.
Current and future global 8 7 6 5 POSITIVE FLOWS
biodiversity finance 640 USD bn
and harmful subsidies
conservation financing gap
4 3

A. B. C.

4 3 4 3 4
NEGATIVE FLOWS NEGATIVE FLOWS 1 2 NEGATIVE FLOWS
–1020  USD bn –1020  USD bn 1 –350  USD bn

1 2 1 2

8 7 6 5 POSITIVE FLOWS
640 USD bn

A.  B. C.
4 3 Global biodiversity finance Most harmful subsidies Most harmful subsidies
and harmful subsidies to biodiversity not to biodiversity
in 2019 reformed by 2030 reformed by 2030

NEGATIVE FLOWS

1. Fossil fuels subsidies –478 –478 –82

2. Agriculture production subsidies –451 –451 –221
3. Fishery production subsidies –36 –36 –20
4. Forestry production subsidies –55 –55 –27

1 2 Total: –1020 –1020 –350

POSITIVE FLOWS

1. Biodiversity offsets 9 168 168

2. Governmental budgets and taxation 78 155 155
3. Natural infrastructure 27 139 139
4. Green financial products 6 93 93
8 7 6 5 POSITIVE FLOWS 5. Nature-based solutions and Carbon markets 1 40 40
143  USD bn 6. Official Development Assistance (ODA) 10 19 19
4 3
7. Sustainable supply chains 8 19 19
1 2 8. Philanthropy and conservation NGOs 4 8 8

Total: 143 640 640

132 133
 Harmful subsidies reform: agriculture
SCALE (2030)
There is evidence that shifting support away from production also improves
0–230 bn agriculture efficiency. After New Zealand eliminated all agricultural
As of 2019, total agricultural subsidies potentially harmful to biodiversity subsidies in 1986, agricultural employment grew and the country’s
TIMEFRAME
were estimated at USD 451 billion, of which USD 100–230 billion were meat industry became the second-most efficient in the world (CBD n.d.).
considered most harmful to biodiversity. The agriculture sector may To guarantee the reform and realignment of the USD 100–230 billion
currently be the single largest contributor to biodiversity loss globally due most harmful agricultural subsidies to biodiversity by 2030, countries
to the associated land-use changes, water and land pollution, and land would need to commit to a compound annual reduction of at least 6.3%
degradation (IPBES 2019). These effects result from a variety of intensive over the next 10 years. This would result in a remaining USD 0–221 billion
LEVEL unsustainable practices that involve overuse of inputs, soil exhaustion and in agricultural subsidies that are potentially harmful to biodiversity by 2030.
deforestation. The practice of clearing forests and other natural habitats
to make way for intensive agriculture, often in the form of soy and oil palm
plantations, tree monocultures for timber and pulp, and pasture for beef,

is especially pernicious in the tropics, where much of the Earth’s biodiversity
DIRECT OR MAINSTREAMING is found. Overall, the sector contributes to nearly 25% of greenhouse gas
BIODIVERSITY emissions (IFRI 2019) and 80% of global deforestation (Kissinger et al.
2012). In addition, agriculture accounts for 70% of water withdrawals,
with water pollution largely resulting from fertiliser run-off, groundwater
salinisation and agrochemical contamination (FAO 2017).

REDUCINGNEGATIVE/ In 2019, USD 230–451 billion was directed to potentially harmful

IMPROVING POSITIVE agricultural subsidies (OECD 2020a). If this trend continues, agriculture
will result in a 70% loss of terrestrial biodiversity and 40% loss of freshwater
biodiversity by 2050 (Food and Land Use Coalition 2019). Realigning to
biodiversity-positive or neutral subsidies in agriculture would both preserve

biodiversity and protect ecosystem services that underpin the agriculture
sector – such as insect pollination, which is valued at USD 153 billion per
year and sustains 71 of the 100 most commonly used crops (PwC and
WWF 2020).

The most common approach to making agriculture subsidies more

environmentally friendly is through decoupling production from government
support, so targeting pollution instead of farmer’s profits. In the EU’s
Common Agricultural Policy (CAP), decoupling agricultural support from
yield amount and input use caused a 20% decline in nitrogen fertiliser use
and 17% decrease in nitrous oxide emissions from 1990 to 2015 (World Bank
2018). Despite the progress in specific indicators, the CAP has not been
successful in halting biodiversity loss in farming. Measuring progress has
also been difficult due to the inconsistency and unreliability of information
(European Court of Auditors 2020). Following on from this, 40% of the
CAP budget will be allocated to fund climate-resilient agriculture, efficient
resource use and policies on environmentally conscious food systems,
according to the EU Biodiversity Strategy for 2030 (European Commission
Communications 2020).

134 135
Case study
Reforming harmful
subsidies to support
biodiversity in Kyrgyzstan
Agriculture is a critical sector and an important
source of livelihoods in Kyrgyzstan, employing
32% of the population and contributing 14.2% of
the country’s GDP in 2018 (FAO 2019b). Private
farms dominate agriculture (60%) followed by
private household plots (38%) and state farms
(2%). Most production involves subsistence
farmers in grain and livestock production, and the
country’s main exports are tobacco and cotton.
Kyrgyzstan has a number of subsidies for
increasing agricultural productivity, namely
subsidised inputs (fertiliser, pesticides and
seeds), subsidised loan interest rates for
agricultural producers, subsidised utility tariffs
(water and electricity), subsidised management
and maintenance costs for irrigation systems,
income tax exemptions, value added tax (VAT)
exemptions, and land taxes that benefit
producers and food processors. In total,
agricultural subsidies in Kyrgyzstan totalled
USD 300 million in 2017, according to
UNDP BIOFIN.
UNDP BIOFIN developed a policy and
institutional review that revealed some
agricultural subsidies were leading to
inappropriate land-use practices and inadequate
water management measures, causing
biodiversity degradation. Examples included
overgrazing or uncontrolled grazing, conversion
of high-mountain wildlife habitat to new pasture
and hayfields, and land-use change of agricultural
land to other types of economic activities.
At the time of writing, approximately one third
of Kyrgyzstan’s pastureland was degraded.
136
Three cases contained evidence of subsidies
directly contributing to negative environmental
externalities. First, VAT exemptions contributed
to agrochemical overuse, which, in turn, reduced
soil quality and caused fertiliser run-off into
non-agricultural areas and water bodies. Second,
government support led to high-yield seed
varieties supplanting endemic crops, thereby
reducing the variety of crops and the genetic
diversity of crop species. Third, subsidised water
tariffs led to unsustainable water use, depleting
water resources but also causing soil fertility loss,
waterlogging, salinisation and soil erosion.
In response to the environmental effects of
its subsidies, the government of Kyrgyzstan
proposed in its 2019–2023 Green Economy
Development Program that all agricultural
support must be reviewed to confirm the
extent of their environmental impacts. Both an
interagency working group and UNDP BIOFIN
are collaborating with the government to identify
the most harmful subsidies and help frame new
policies that support a transition to green rural
agriculture. The focus currently is upon replacing
VAT exemptions for agrochemicals, subsidised
loans and subsidised water rates with new
fiscal policies.
Case study a new type of landscape payment. The reform
Reforming agricultural
also revised per-hectare and livestock payments,
both of which comprised the bulk of farmer
subsidies to support
income support. Removing these payments was
initially met with resistance from the Farmer’s
biodiversity in Switzerland
Union and conservative parties. In response,
the majority liberal parties compromised by
adding market reforms to encourage more trade
In Switzerland, 36% of species are endangered liberalisation for farmers. The popular vote on
and almost 50% of wildlife habitats are Article 104 also bolstered the liberal parties’
threatened. Agriculture is one of the major argument that citizens wanted agriculture to
contributors to the loss of biodiversity in be more consistent with strong environmental
Switzerland, with agricultural land occupying standards and biodiversity protection. The Swiss
roughly one third of the country’s land area, government further initiated transition payments
the majority of which shows signs of over- to mitigate severe farmer income loss and
intensive water and land use. In response, gather public farmer support for the reform
Switzerland enacted its 2014–2017 Agricultural (OECD 2017c).
Policy (AP 2014–2017) to better align agricultural
subsidies with positive biodiversity outcomes It is too early to know what the effects of AP
(OECD 2017c). 2014–2017 on biodiversity will be, but there are
positive indications so far. The amount of land
Switzerland began greening its agriculture sector qualifying as ‘ecological compensation areas’,
in the 1990s, when it authorised ecological direct or reserved for restoring ecosystems, met the
payments that provided compensation for AP goal by 2014. The total amount of agricultural
biodiversity-friendly farming activities. In 1996, support set aside for AP 2014–2017 was USD 14.5
a proposal backed by 75% of voters led to Article billion, which is slightly higher than Switzerland’s
104, which required Swiss agriculture to meet previous agricultural expenditure and also higher
four pillars: food production stability, use of than most OECD countries.
methods that protect soil and potable water
resources for the future, responsible landscape
management, and sustainable rural areas. An
additional agricultural law in 1999 made direct
payments dependent on ‘proof of ecological
performance’ (PEP). Since then, Swiss farms
have been required to adhere to PEP
requirements in exchange for direct payments.
To better align its agriculture sector with the
objectives of Article 104, the Swiss Federal Office
of Agriculture collaborated with the Farmer’s
Union, WWF, other environmental NGOs and
economic organisations to create AP 2014–2017.
The reform introduced two new PEP frameworks,
including one for ‘highly valuable biodiversity
areas’, and incorporated biodiversity criteria for
137
 Harmful subsidies reform:
SCALE (2030)
0–16 bn
TIMEFRAME
fisheries and aquaculture
As of 2019, total fisheries subsidies that are potentially harmful to
biodiversity were estimated at USD 36 billion, of which USD 16 billion are
considered most harmful to biodiversity. According to the FAO (2020),
the proportion of global fish stocks within biologically sustainable levels
LEVEL declined from 90% in 1974 to 66% in 2017. Subsidies to fisheries can lead to
global fish stock depletion by supporting variable and fixed costs in fishing
operations, which externalise operator risks and encourage overinvestment
(OECD 2018d). The OECD (2018d) found that fisheries subsidies most
harmful to biodiversity are fuel subsidies, subsidies for vessel construction
DIRECT OR MAINSTREAMING and modernisation, subsidies for port construction and renovation, price
BIODIVERSITY and marketing support, fisheries development projects, and foreign access
fishing agreements. While several of these subsidies result in overfishing
practices, some subsidies also have additional indirect effects, such as
incentivising illegal, unreported and unregulated fishing and excess waste
(IPBES 2019).
REDUCINGNEGATIVE/
IMPROVING POSITIVE Unchecked or unsustainable growth in the aquaculture sector can also
lead to overproduction (FAO 2018). Subsidies such as investment grants
can artificially boost production, leading to irreversible damage to nearby
ecosystems like the massive conversion of mangroves to shrimp farms in
Asia. Unchecked aquaculture production can also lead to the destruction
of mangrove forests, soil salinisation or acidification, water pollution and
changes to hydrological patterns, among other negative effects.
Fisheries policies must discontinue support that promotes overfishing,
overcapacity and illegal, unreported and unregulated fishing (OECD
2018e). Over 50% of harmful subsidies in these sectors are originated in
emerging markets, therefore donors and international organisations should
support developing countries to undertake thoughtful reforms that deliver
both economic and environmental benefits (OECD 2019b). To guarantee
the reform and realignment of the USD 16 billion most harmful fisheries
subsidies to biodiversity by 2030, countries would need to commit to a
compound annual reduction of at least 5.1% over the next 10 years. This
would result in a remaining USD 0–20 billion in fisheries subsidies that
are potentially harmful to biodiversity by 2030.
138
Harmful subsidies reform: fossil fuels
SCALE (2030)
0–396 bn
As of 2019, total fossil fuel subsidies were estimated at USD 478 billion,
TIMEFRAME
of which USD 396 billion are considered potentially the most harmful to
biodiversity (OECD 2020a). Four major categories of subsidies stimulate
overproduction in the industry, namely: (1) direct transfer of funds, (2)
induced transfers or price supports, (3) tax expenditures, other revenue
foregone, and under-pricing of goods and services, and (4) transfers of risk
(UNEP 2019). While the total declined from 2018, the OECD’s analysis LEVEL
indicates that 44 advanced and emerging economies increased their
support for fossil fuels by 38% year on year (OECD 2020a). Furthermore,
the overall decline in fossil fuel subsidies was attributable to the fall in
global oil prices in 2019 (OECD 2020a).
DIRECT OR MAINSTREAMING
Fossil fuel subsidies can result in various direct and indirect negative effects BIODIVERSITY
on biodiversity. Direct effects are usually from fossil fuel extraction and
transport. The more destructive effects, however, are likely to be indirect,
with increased greenhouse gas emissions impacting climate and habitats.
These long-term climate-related impacts are difficult to predict and subject
to several other factors. REDUCINGNEGATIVE/
IMPROVING POSITIVE
Indonesia offers a promising example of fossil fuel subsidy change – in 2013,
the government provided rice subsidies to mitigate the impact of energy
price increases (UNEP 2019). Similarly, Morocco in 2014 reallocated
funds to social and health programmes as well as growth sectors such
as renewable energy (UNEP 2019). The G20 and the EU have been
instrumental in achieving progress in fossil fuel subsidies reform, with
the latter setting a 2025 target date for ending aid to high-CO2 emission
production such as the coal industry (OECD 2019a). Even so, it is
undeniable that any fossil fuel subsidy reform will run into significant
political barriers, especially among subsidies that are targeted to bring
affordable gas and oil to lower-income groups. After the Ecuadorian
government removed gasoline subsidies in 2019, the 25% increase in
gasoline prices led to 12 days of violent protests. To guarantee the reform
and realignment of the USD 396 billion most harmful fossil fuel subsidies
to biodiversity by 2030, countries would need to commit to a compound
annual reduction of at least 14.8% over the next 10 years. This would result
in a remaining USD 0–82 billion in fossil subsidies that are potentially
harmful to biodiversity by 2030.
139
 Ecological fiscal transfers
SCALE (2030)
Learn more This provided a sizable fiscal incentive to protect

Ecological fiscal
existing forests and restore former forests. There
N/A are no significant effects on India’s forest cover
Intergovernmental fiscal transfers are mechanisms for redistributing tax
transfers in Brazil,
TIMEFRAME as of now, but a more rigorous analysis over a
revenues between different levels of government, generally from national
longer period of time is necessary to reveal any
and regional governments to local ones. The amount of national funding
Indonesia and India
substantial results (Busch and Mukherjee 2018).
redistributed to local governments is determined by criteria including
population, land area, GDP, geography, and level of development.
Indonesia had a previously established fiscal
Brazil has been one of the world’s leaders in EFTs transfers framework but began including
LEVEL Ecological fiscal transfers (EFTs) represent a type of fiscal transfer that
since the early 1990s. The ICMS (Imposto sobre environmental indicators within the allocation
integrates environmental indicators within fiscal transfer calculations
Circulação de Mercadorias e Serviços Ecológico, calculation in August 2019. The EFTs operate
to reward investments in conservation and protected areas (UNDP
or ICMS Ecológico) is an innovative scheme under the TAPE (Provincial Ecological Fiscal
2016). Intergovernmental transfers make up nearly 60% of subnational
dedicated to accounting for environmental Transfer) programme, which transfers funds
expenditures outside the OECD and a third of expenditures within
indicators within national fiscal transfers to the from the provincial to the district level, and
(UNDP 2016). In most cases, environmental factors are not considered
DIRECT OR MAINSTREAMING states. The scheme is based on the general ICMS TAKE (District Ecological Fiscal Transfer), which
BIODIVERSITY despite their tangible benefits for local jurisdictions. EFTs can advance
tax, which is similar to a value-added tax. In the transfers funds from the district level to the
conservation initiatives by both compensating for the opportunity costs in
case of the ICMS Ecológico, funds are allocated village level. TAPE funds are allocated according
conservation investments. Without them, local governments are much
to compensate for land-use restrictions and to two sets of criteria. The first provides funds
more likely to use their fiscal transfers to invest in other activities such as
encourage conservation (Cassola 2010). The based on the total level of forest cover in the area,
conventional agriculture, industry, and construction to maximize short-term
state of Paraná in Brazil began using EFTs in and the second provides additional funds based
REDUCING revenue generation rather than environmental benefit.
NEGATIVE/ 1989. The level of transfers to municipalities is on the level of change in forest cover (Keift and
IMPROVING POSITIVE
determined by an index that accounts for size Efriyanti 2020). Total fiscal transfer delivery
While few examples of well-developed ecological fiscal transfer programs
of protected areas, size of the municipality, the grants in Indonesia came to USD 56 billion in
exist so far, successes in Malaysia, Brazil, Portugal and France proved
protected area’s management category, and the 2019, which may create incentives for significant
that the concept is viable. EFTs are especially needed when the criteria
quality of the area (Loft et al. 2016). This keeps regional support for maintaining and increasing
for funding depends on protected area statistics. Using EFTs to support
track of biodiversity, quality of water resources, forest cover in the coming years (Keift and
protected areas (PAs) preserves biodiversity hotspots at a resolution
and how the protected area is managed and Efriyanti 2020).
that national-level programmes cannot achieve, potentially protecting
contributes to the community. The programme
microhabitats that are ecologically important to local actors even if
was well-received in Paraná, with the number of
they are not recognized the same way by national actors.
municipalities receiving benefits from the
biodiversity index increasing by 179% in eight
years. Over that same period, the extent
of conservation areas increased by 165%
(Cassola 2010).

India includes forest cover in their formula for

determining federal tax revenue distribution.
In 2014, India’s Finance Commission declared
that 7.5% of fiscal transfer weight would be
ascribed to forest cover, determined by biannual
surveys from the Indian Forest Service (Busch
and Mukherjee 2018). In 2015–16, the first
post-reform year, an estimated USD 5.7 billion
was transferred to states on the basis of forest
cover (Reserve Bank of India 2016).

140 141
 Environmental and social
risk management
The private sector can play a greater role in biodiversity conservation
through integrating environmental and social risk management into its
operations. Operationalising environmental and social risk management
for financial services as well as non-financial industries should help
achieve the 4th Aichi Biodiversity Target, which addresses businesses’
responsibilities to protect biodiversity and is due to be updated in 2021.
In addition to the estimated USD 670–1,020 billion per year in potentially
harmful subsidies for the agriculture, fisheries, forestry and fossil fuels
sectors, by one estimate 50 of the world’s largest banks invested over
USD 2.6 trillion in 2019 into the sectors most harmful to biodiversity,
averaging about USD 52 billion per bank (Portfolio Earth 2020). A review
of 1,800 companies found that more than 13% of them created more
environmental damage than they generated profit, while nearly 33% of
these companies caused environmental damage equivalent to a quarter
of their profits (fDi Intelligence, 2020).
Biodiversity investment risk management can mitigate investment or
lending portfolio exposure to companies that are highly dependent on
production practices that degrade biodiversity or have other significant
negative impacts on nature. Doing so will avoid future costs that could
result from habitat loss, especially as the physical threat of biodiversity
degradation upon businesses and society becomes more urgent. In addition,
this presents an opportunity to generate USD 10 trillion and 395 million jobs
in new business opportunities by 2030 (WEF and AlphaBeta 2020). For the
finance sector, this means mainstreaming biodiversity risk analyses into
ESG investment and lending practices. For companies that provide goods
and services, this means evaluating their supply chains and production
practices to make them more sustainable and efficient. There is no
formalised index or metric for biodiversity risk, like carbon emissions
for climate change risk, but efforts such as the Integrated Biodiversity
Assessment Tool, which cross references the three most respected
biodiversity databases, are providing first steps into quantifying companies‘
support to biodiversity.
Environmental and social risk management might be affected by the
standards set by major investors and lenders, but it is ultimately driven
by firms’ decisions to transform their supply chains. Supply chains
constitute the organisations, people, activities and resources that
enable production, consumption and logistics related to global products
and services industries.
142
Sustainable supply chains
SCALE (2030)
>12–19 bn
As investors and policymakers become more aware of the need for
TIMEFRAME
sustainable supply chains, a range of financing tools for business model
transformations are emerging. Private financial institutions, multilateral
development banks and development finance institutions can provide
concessional financing to incentivise producers along a supply chain to
engage in more sustainable production practices. Governments can
facilitate this transition through laws that prohibit harmful supply chains. LEVEL
For example, the UK government in August 2020 proposed a new law that
bans companies from selling products harvested on illegally deforested
land. And in West Africa, the largest cocoa and chocolate sector companies
were conveneed by the World Cocoa Foundation and IDH The Sustainable
Trade Initiative to collaborate with the governments of Ghana and Cote
d’Ivoire. This collaboration resulted in the Cocoa & Forests Initiative,
where companies work pre-competitively to end deforestation and forest
degradation in the cocoa supply chain. DIRECT OR MAINSTREAMING
BIODIVERSITY
Supply chain finance describes financial products that support trade
transactions by providing liquidity for firms’ working capital requirements
(BSR 2017). BSR, a non-profit that brings together a group of 250 member
companies on issues of corporate responsibility, identifies three financial
solutions to enable sustainable trade norms: (1) sustainable payables REDUCINGNEGATIVE/
finance, (2) sustainable trade loans, and (3) smart contract solutions (BSR IMPROVING POSITIVE
2017). Sustainable payables finance involves buyers integrating their ESG
performance criteria into their supply chain finance programmes such that
suppliers receive rewards and/or tangible benefits for strong sustainability
performance (BSR 2017). Sustainable trade loans are loans used to pay
suppliers of goods and services for their procurement of sustainably
sourced, manufactured or converted raw materials. Finally, smart contract
solutions take advantage of blockchain technology to offer self-executing
contracts between buyers and sellers that increase transparency and
traceability across supply chains. Financial institutions can also offer
concessional financing for suppliers to engage in more sustainable
production practices. For example, Sustainable Investment Management,
a London- and Rio de Janeiro-based financial institution, created
a Responsible Commodities Facility that provides subsidised credit lines
to soy farmers who pledge to avoid conversion of the Brazilian Cerrado,
or savannah (Kingsbury 2019).
Investors can also make positive change in supply chains. Barclay’s
Biodiversity Landscape provides an assessment of multinational
companies highly exposed to biodiversity risks associated with
unsustainable cattle palm oil, soy and timber production and supply
chains (Ogundiya et al. 2020).
143
 Learn more with some companies even reducing their

Impacts of supply
deforestation commitments (Thomson
and Rogerson 2020).

chain commitments Such a lack of progress highlights the need

on the forestry sector

Between 2014 and 2018, a total area of forest
approximately equivalent to the area of the
United Kingdom was lost every year across the
planet (NYDF 2019). New deforestation hotspots
have emerged in the past five years. Latin
America drives much of the accelerating growth
in deforestation, with tree cover losses in the
Brazilian Amazon alone increasing by 88%
between May 2018 and June 2019 (NYDF 2019),
and African forests increasingly under threat.
Commercial agriculture and forestry expansion
are currently the main drivers of deforestation,
with large-scale commercial forestry accounting
for 40% of tropical deforestation between
2008 and 2010 (FAO 2020). The increasing
profitability in agriculture can, at first glance,
rationalise land-use change of forests, but
ultimately falls short of a financial justification
when including all of the ecosystem services
provided by intact forests.
for public and private organisations to better
enforce deforestation commitments, as well
as a multi-stakeholder approach to introduce
sustainable supply chains.
Governments can also stem deforestation by
reducing their consumption of commodities
sourced from converted biodiversity hotspots.
Forest Trends notes that the EU, China, India,
Russia and the United States were the largest
buyers of commodities with the most significant
impacts on biodiversity in 2014, and could benefit
from policies and national frameworks to reduce
such demand (Lawson 2014). As of 2019,
total forestry subsidies potentially harmful to
biodiversity were estimated at USD 55 billion,
of which USD 28 billion are considered most
harmful to biodiversity. To guarantee the reform
and realignment of the USD 28 billion most
harmful forestry subsidies to biodiversity by
2030, countries would need to commit to a
compound annual reduction of at least 6.3%
over the next 10 years.

Firms and countries are increasing efforts to use

production practices that minimise effects on
forests. This includes governments implementing
production compliance standards, and the
private sector independently improving the
sustainability standards of their production.
The Consumer Goods Forum adopted a 2020
deadline to zero net deforestation in 2010.
In 2014, the New York Declaration on Forests
(NYDF), a non-binding declaration that includes
200 public and private endorsers, committed
to eliminating deforestation from agricultural
commodity supply chains by 2020 (Thomson
and Rogerson 2020). Unfortunately, Global
Canopy’s Forest 500 annual report found that
little progress has been made in this area in 2019,

144 145

Learn more
Access and Benefit
Sharing (ABS)
The 2014 Nagoya Protocol on Access to Genetic
Resources and the Fair and Equitable Sharing
of Benefits Arising from their Utilization to the
Convention on Biological Diversity provides a
global framework for implementing the third
objective of the CBD: “the fair and equitable
sharing of benefits arising from the utilization
of genetic resources”. This agreement allows
access to genetic resources guaranteed by
biodiversity to only be shared according to
agreements and consent of local communities,
which leads to biodiversity protection (CBD n.d.).
Ultimately, while some flora and fauna have
potential for commodity production, especially
in biomedical fields, the CBD promotes these
resources to be equally shared by the community
and interested stakeholders. The Nagoya
Protocol enhances legal certainty and
transparency for both users and providers of
genetic resources – which are essentially all
organisms and their parts – and of traditional
knowledge associated with their use. The access
and benefit sharing (ABS) concept developed
by the CBD and further specified by the Nagoya
Protocol combines conservation and sustainable
use of biodiversity with academic and
commercial pursuits by balancing interests of
users and providers of genetic resources. Many
developing countries and emerging economies
regard ABS as a realistic opportunity to generate
value from biodiversity, support the domestic
research landscape and create new value chains
that benefit the wellbeing of the population and
support biodiversity conservation measures.
146
Biodiversity investment
SCALE (2030)
The EU formalised ABS legislation in 2014 that
requires genetic resources and their traditional
N/ A
knowledge to be shared upon mutually agreed
risk management
terms with local communities when those assets TIMEFRAME
are “used in research and development for their
To integrate biodiversity investment risk management into operations,
genetic properties and/or biochemical
financial service firms should account for the cost of biodiversity losses in
composition” (EU No 511 2014).
their risk analysis processes. Doing so can ensure that investors mainstream
biodiversity as they evaluate their investment portfolios to minimise risks
ABS has the potential to expand into larger
related to nature loss. Financial institutions can implement biodiversity risk LEVEL
biomedical, agriculture and medicinal uses
management practices in their portfolios through positive and negative
through digital sequence information, which
screening, the adoption of norms and standards, corporate engagement,
will help make more genome sequencing data
divestment, and ESG integration.
available for public use (Land et al. 2020). To
unleash its full potential and leverage tangible
Positive and negative screens use a set of criteria to assess a portfolio’s
impacts, however, provider countries need DIRECT OR MAINSTREAMING
revenue models and associated production practices. If companies are BIODIVERSITY
to establish effective regulatory frameworks,
highlighted through a positive screen – that is, their core operations are
develop national valorisation strategies, and
beneficial for biodiversity – they will be included in an investor’s portfolio
negotiate enforceable ABS contracts with
(Braverman 2019). Negative screens for biodiversity risk are the opposite
the users of genetic resources and associated
in that they result in exclusion from a portfolio. Both positive and negative
traditional knowledge. At the beginning of 2020,
screens can be implemented separately, or as part of a screen that REDUCING
124 countries across the world recognised this NEGATIVE/
weighs biodiversity risk as part of larger ESG concerns (Schroeders 2017). IMPROVING POSITIVE
opportunity for sustainable development and
Adopting norms and standards can catalyse more rigid sustainability
ratified the Nagoya Protocol. At present, many
standards to receive funding. Either firms adopt internal policies or
national ABS strategies and regulations are
government regulations require these actions (PRI 2018). In either case,
being developed or undergoing revision.
firms and invested companies must maintain transparency on meeting
biodiversity performance indicators and share a willingness to engage in
Biodiversity conservation is currently part of
biodiversity to clarify the risks and opportunities within biodiversity among
the ABS framework, though it may be removed
investors (PRI 2020a).
in future ABS policy negotiations. In this case,
all agreements will pertain to genetic resource
Financial institutions can also directly engage with executives or board
exchange and not biodiversity. However,
members to drive better environmental outcomes. In extreme situations,
biodiversity loss has not successfully been
investors and lenders can consider divestment from these firms if
mitigated under ABS policies as many countries
companies do not comply with biodiversity targets (Maiden 2019).
still extract from diverse habitats despite their
Finally, ESG integration requires that financial institutions use available
ABS obligations. Critics argue that ABS by itself
information on a company’s ESG outcomes, in line with the way that they
is not the correct mechanism or framework
analyse financial, market and operational risk to make investment or
for managing cross-discipline, multi-party
lending decisions (Deutz et al. 2020).
negotiations needed to protect biodiversity
(Laird et al. 2020).
An example of a specific issue that ESG management can combat is
illegal wildlife trade, a practice both harmful to biodiversity and the root
of many zoonotic disease outbreaks like COVID-19. Traffickers exploit
services provided in the private financial sector, such as purchasing estate,
to launder funds. This can be prevented by thorough risk assessment and
mitigation. While biodiversity investment risk management has yet to
become a major component of ESG risk management, firms are beginning
147
 to understand and respond to the interdependencies between biodiversity
degradation and the financial performance of their portfolio companies.
Investors and lenders with material exposure to risky sectors and risky
companies must re-evaluate their investments and consider the potential
these firms have to earn a return or service their debt if their natural capital
base continues to decline. Substantial biodiversity loss and ecosystem
collapse can lead to increased credit, liquidity, market and operational risk.
In order for any of these risk management tools to be effective, firms must
set meaningful targets for their portfolios, which balance investment
returns with material risks posed by biodiversity loss as well as their
fiduciary duty to their clients. Advancing these risk management tools
further requires consistent asset and company-level data on biodiversity,
which helps both to standardise expectations among investors and to
better identify biodiversity risks within portfolios (PRI 2020a).
148
Case study As part of their efforts to expand the use of the
Biodiversity conservation
BFFI methodology by other institutions, the
bank has established Partnership Biodiversity
targets in a retail bank
Accounting Financials (PBAF), an initiative
for financial institutions to conduct biodiversity
impact calculations of their operations.
ASN Bank (ASN) is a Dutch retail bank focused on Furthermore, the bank is in the process of
socially responsible and sustainable investments. automating the BFFI biodiversity footprint
As part of its sustainability policy, ASN created calculation to encourage wider-scale adoption
a biodiversity pillar and established a goal of of the methodology.
generating a net-positive effect on biodiversity
for its investments by 2030. As part of this effort,
ASN, in conjunction with consulting groups
CREM and PRé Sustainability, created the
Biodiversity Footprint for Financial Institutions
(BFFI) methodology to measure the biodiversity
impacts of its investment portfolio (CREM
and PRé Consultants 2016).
The BFFI framework analyses the biodiversity
impact of company investments by mapping
the impacts of the company’s operations at the
sectoral and geographic levels. This mapping
exercise is conducted with information available
from third-party databases. The environmental
impacts of these sectors are cross-referenced
through using an environmental supply-use
database on the geographies in which it operates.
Through this process, the BFFI is able to estimate
the ‘environmental pressure’ exerted by the
company. This information is in turn used in
a life cycle analysis model to quantitatively
determine the relationship between
environmental pressure and impact on terrestrial,
freshwater and saltwater biodiversity (CREM
and PRé Consultants 2016). The quantitative
impact analysis is further complemented with
a qualitative assessment to identify areas
where the actual footprint may be higher or
lower than calculated using the life cycle
analysis methodology.
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Learn more
Mainstreaming
biodiversity through
investment risk
management
Legacy inefficient production practices increase
the risk a firm faces from having relatively
unadaptable or unmodifiable production
practices. This is especially relevant where
transition risks, or the risks of businesses
underinvesting in transitioning to more
sustainable supply chains in response to new
environmental regulations, impact business
continuity. For example, changes in regulations
pertaining to pollution mitigation, sourcing and/
or waste management, might lead to companies
with high transformation risk incurring significant
material losses (DNB and PBL 2020). In turn,
greater transformation risk can result in greater
reputational risks, where negative environmental
impacts may influence investor or public
sentiments (DNB and PBL 2020). Integrating
biodiversity risk management into standardised
ESG practices necessitates having the data
to understand the materiality of risks posed
by biodiversity loss as well as cultural shifts
that force firms to adopt progressive risk
management practices.
Firms can account for biodiversity financial risk
through using tools such as materiality maps
or other ESG risk management processes.
For example, the Sustainability Accounting
Standards Board’s materiality map provides
a basic framework for investors and lenders
to evaluate the total ESG risks of a sector per
specific criteria. While useful, materiality maps
might understate biodiversity-related risks
because they aggregate ESG risks into single
conclusions that might otherwise obscure an
150
investment’s ecological impact. To highlight
biodiversity impacts on their own, new
frameworks can either give greater weight
to biodiversity impacts, based on the firm’s
dependency on nature, or focus on biodiversity
alone. In the future, standardising key
performance indicators and data collection
related to a firm’s impact on biodiversity can
facilitate greater mainstreaming of biodiversity
financial risk management. There are transition
risks for economies and people when accounting
for the physical biodiversity risks in ESG
management, but the greater the physical
risk the more urgent a transition is. Moreover,
delaying a transition heightens the physical
risks and, in turn, continuously heightens the
transition risk even more (Colas et al. 2019).
The Dutch Central Bank’s analysis of biodiversity-
loss risk exposure highlights how better data and
clear methodologies can bolster the business
case for mainstreaming biodiversity risk
assessments. Of the investments made by
financial institutions in the Netherlands, 36%
are dependent on one or more ecosystem
service (DNB and PBL 2020). The bank’s model
highlights physical, transition and reputational
risks resulting from biodiversity loss (DNB and
PBL 2020). They calculate physical risk through
assessing national financial institutions’ exposure
to ecosystem services such as pollination (DNB
and PBL 2020).Transition and reputational risk
are then dependent on companies’ negative
impacts on biodiversity (DNB and PBL 2020).
While this model will benefit from further
iterations and improvements as firms’ reporting
of company-level biodiversity risk becomes more
sophisticated, their biodiversity risk calculation
methodology can serve as an example for other
financial institutions.
Learn more
Zero-deforestation
investments
Financial institutions can catalyse change in
the companies that they invest in or lend to
through engaging with these companies to
lower the biodiversity risk related to activities
such as deforestation. In 2020, 254 investors
representing USD 17.7 trillion of assets signed a
statement requesting that companies disclose
commodity-specific no-deforestation policies
and related commitments, assess and minimise
operational and supply chain risk related to
deforestation, establish transparent monitoring
systems, and produce annual reports on
deforestation (PRI 2020b).
Spurred by rapidly accelerating deforestation
and increased forest fires, the statement was
signed by a large number of institutional
investors including Aviva Investors, HSBC Global
Asset Management, and Legal and General
Investment Management. Such investors,
because of their size and global presence, have
significant leverage to influence the choices that
companies make about production and supply
chain sustainability (PRI 2020b). For example,
34 asset managers representing USD 4.6 trillion
instituted a 120–day work ban in Brazil in
response to a 34% annual increase in Amazon
deforestation and an attempt to pressure the
government to take better accountability of
their forests (Thind 2020).
SPOTT– Sustainability Policy Transparency
Toolkit – is a free, online platform supporting
sustainable commodity production and trade
developed by ZSL with support from inter alia
Credit Suisse, who continue to act as a technical
advisor. By tracking transparency against more
than 100 sector-specific indicators, SPOTT
incentivises corporate good practice, including
reducing by over 200 of the world’s largest
commodity producers and traders. Investors,
buyers and other key influencers use SPOTT
assessments to inform stakeholder engagement,
manage ESG risk and encourage transparency,
including managing investment risks potentially
associated with deforestation across multiple
industries.
While awareness is increasing among investors,
there has not yet been a major shift in how
the asset management industry manages
biodiversity risks and impacts within its own
investment portfolios. ShareAction, a UK-based
organisation that advises investment managers
on environmental and social matters, has found
that none of the world’s 75 largest asset
managers has a dedicated policy on biodiversity,
and that only 11% have policies that require
portfolio companies to minimise their impacts
on biodiversity (Cooper 2020). A 2019 study
on current zero-deforestation commitments
found that global pledges could be strengthened
if: (a) a larger share of the global market for
deforestation-risk commodities participated
in such practices, (b) focus expanded beyond
effects on specific biomes such as the Brazilian
Amazon, (c) pledges did not include ‘net-
deforestation’ and instead focused on ‘gross-
deforestation’ targets, and (d) clearer targets
and deadlines are set for realising commitments
(Garrett et al. 2019).
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Learn more
Renewable energy
infrastructure
investments
Infrastructure construction can result in
biodiversity loss through increasing pollution,
blocking migration routes for animals, altering
hydrological regimes, and making it easier for
illegal hunters to access protected habitats
(WWF n.d.). Renewable energy infrastructure
projects can also have negative effects on
biodiversity when implemented without
considering ecosystem impacts. A recent study
revealed that 2,206 fully operational onshore
wind, hydropower, and solar power generation
facilities, as well as 922 facilities under
development, were built within the boundaries
of 886 protected areas, 749 key biodiversity
areas contributing significantly to terrestrial,
freshwater and marine ecosystems persistence
and functioning, and 40 distinct wilderness areas
in North America, Western Europe and Southeast
Asia (Rehbein et al. 2020). Mining for materials
needed by renewable energy infrastructure
overlaps with 8% of protected areas, 7% of key
biodiversity areas and 16% of remaining
wilderness (Sonter et al. 2020).
In the coming decades, investments in large
infrastructure projects such as the Belt and
Road Initiative will increase and renewable
energy investments will be scaled up, especially
in developing countries, and so more safeguards
to prevent biodiversity loss will be required
(Narain et al. 2020). Given that the renewable
energy market is growing, with USD 3.2 trillion
needed per year to finance a low-carbon
energy transformation, financial services firms
supporting the infrastructure market’s growth
must incorporate biodiversity and ecosystem
services impacts into their investment due
152
diligence processes. In its 2017 monitoring
report, the Compliance Advisor/Ombudsman
(CAO) alerted the International Finance
Corporation (IFC) for not having sufficient
standards for evaluating their investments’
environmental and social impacts (CAO 2017).
Between 2000 and 2014, 26% of eligible CAO
complaints stated that IFC projects led to
land pollution and negative biodiversity
effects (CAO 2017). These results illustrate
the importance of environmental due diligence
and monitoring for infrastructure investments.
Without meaningful investment monitoring
and associated penalties for negative
environmental impacts, the positive effects
of low-carbon infrastructure can be outweighed
by the negative effects of ecosystem loss.
Private financial services firms can follow a
similar model to the one used by IUCN, which
partnered with Électricité de France, Energias
de Portugal and Shell Group to develop best
practices for renewable energy projects.
Together, the organisations created a biodiversity
risk framework, sectoral guidelines for the
creation of a mitigation hierarchy, and regulatory
and safeguard recommendations (IUCN 2019a).
Capital Dynamics’ investment in the California
Flats Solar Project adequately implemented
the mitigation hierarchy framework by ensuring
that onsite vegetation and land was maintained
using sheep to graze the land instead of using
landscaping machinery. As a result, a 73,000
acre ranch was able to remain open and in
addition 6,200 acres of mitigation land was
preserved, protecting local endangered species.
Capital Dynamics avoided the potential negative
biodiversity impact of transforming and
developing the land just for renewable energy
commercial use (Infrastructure Investor 2019).
Learn more development of a global tool for quantifying the
ESG and biodiversity
biodiversity impacts in investor portfolios, and
have partnered with I Care & Consult and Iceberg
conservation in France
Data Lab to create this tool (Mirova 2020;
Milburn 2020). This tool is being built to
encompass a firm’s product life cycle, analysing
In 2015, France revolutionised ESG investment steps from raw materials sourcing to product
reporting through Article 173 of the French end-of-life, and to be applicable within a variety
Energy Transition for Green Growth Act, of asset classes and companies listed on major
which requires French institutional investors market indices (Mirova 2020b). These reporting
and insurance companies to report on (a) their requirements were bolstered further in 2016 with
general ESG policy, (b) the resources they the Sapin II law, which required large financial
dedicated to their ESG monitoring and institutions (including the French Development
evaluation, and (c) the results of a climate risk Agency) to implement mechanisms for
analysis on their investment risk profile (WWF preventing corruption and illegal capital flows
France and AXA 2019). The French government (OECD 2018b), including a whistleblowing
has opted for a ‘comply or explain’ approach hotline and a roster of disciplinary rules and
where investors either agree to these sanctions. The law further established a new
requirements or submit an explanation anti-corruption agency, which can impose
of why they did not follow Article 173. sanctions of up to EUR 1 million on non-compliant
companies who fail to meet anti-corruption
So far, the new requirements have produced requirements. When including the government’s
remarkable results. Many French financial commitment to tripling ODA on biodiversity
institutions now agree that Article 173 was projects, Sapin II is a top-down approach crucial
needed for French investors to consider to improving delivery of biodiversity financing.
environmental risks associated with their
investments. The law encouraged the creation
of the Natural Capital and Biodiversity Asset
Class in 2018 to foster synergies between
French investors on biodiversity issues (Finance
for Tomorrow 2018). In 2019, the French
government supplemented Article 173 by
requiring that investor reports take into account
“the preservation of the biodiversity of the
ecosystems and the natural resources, in
particular the participation in the objective
of zero net artificialisation and the use of
renewable energy” (French Energy Code 2019).
Critical to the success of these regulations is also
the leadership of large French asset managers
in addressing the biodiversity challenge. AXA
Investment Managers, BNP Paribas Asset
Management, Sycomore Asset Management,
and Mirova have jointly pledged to support the
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 Current scale of finance Future scale of finance
The current scale of subsidies that are potentially harmful to biodiversity is Even when factoring in the maximum estimate of increased financial flows
estimated to be in the range of USD 670 billion to 1.02 trillion per year, with towards biodiversity conservation of USD 449–640 billion per year, the
the majority originating from the fossil fuels industry (USD 396–478 billion 2030 global biodiversity financing gap will not be closed unless there are
annually) followed by agriculture (USD 230–451 billion annually). Despite significant efforts to scale up the reform of subsidies harmful to biodiversity
these large financial amounts, these estimates do not even account for and improve investment risk management practices by the financial sector.
the additional social costs of pollution, global warming, and the like, which Under a 2030 scenario in which subsidies harmful to biodiversity have not
could potentially drive these estimates much higher (OECD 2019a). These been reformed and funding realigned, the remaining 2030 global biodiversity
subsidies are distributed in a number of forms, including direct transfers, financing gap would be USD 273–327 billion per year. This gap could be
incentives to increase consumption, price supports, risk removal and tax closed by targeting the reform and realignment of the USD 274–670 billion
breaks. Estimated numbers for each category of harmful subsidies can be in most harmful agricultural, fisheries and forestry subsidies, in addition with
found in Table 9 below. the reform of USD 396–478 billion potentially harmful fossil fuels subsidies.
Table 10 below describes in what amounts and to which sectors harmful
Table 9. Annual amounts of harmful subsidies, 2019 subsidies are expected to flow towards, assuming reform of only the most
harmful subsidies.
Type of subsidy Subsidies most Subsidies
harmful to potentially harmful Table 10. Annual amounts of harmful subsidies in 2030, assuming reform of the most harmful
biodiversity to biodiversity
(USD bn/yr) (USD bn/yr) Type of subsidy Subsidies most Subsidies Target annual
harmful to potentially harmful reduction
Support to fossil 395.9 478.0 biodiversity to biodiversity 2019–2030
fuels production (USD bn/yr) (USD bn/yr)

Support to agricultural 230.0 451.0 Support to fossil 0 82.1 14.8%

production fuels production

Support to fisheries 15.9 36.1 Support to agricultural 0 221.0 6.3%

production production

Support to forestry 28.0 55.0 Support to fisheries 0 20.2 5.1%

production production

Total: 669.8 1020.1 Support to forestry 0 26.9 6.3%

production

Concerning the financial scale of supply chain actions harmful to Total: 0 350.2
biodiversity, the global trade of products was estimated to be USD 9.67
trillion in 2019 (WTO 2019) and the impact of supply chains on biodiversity Source: Deutz et al. 2020.
has been historically negative. Fortunately, more businesses are subscribing
to the idea of sustainable supply chains for their products. It is estimated Sustainable supply chains also have potential for dominating a larger
that at least 1% of the sustainable agriculture, sustainable fisheries, segment of global trade by 2030. Estimates for 2030 predict USD 12.4–18
sustainable seafood and sustainable palm oil annual market revenue, billion worth of certified sustainable agriculture, forestry, seafood and palm
or about USD 5.5–8.2 billion, are reinvested in biodiversity conservation oil products (Deutz et al. 2020).
initiatives (Deutz et al. 2020).

154 155
 Conclusion
The mechanisms proposed for realigning expenditures will have varying
effectiveness from country to country, depending on regulatory frameworks
and political economy priorities of both national governments and
businesses. To close the global biodiversity financing gap, both the public
and private sectors will need to critically assess their expenditures that are
harmful to biodiversity and adopt reform alternatives that are politically
and economically feasible. Even though realigning existing negative
expenditures towards positive biodiversity conservation outcomes has the
highest potential for closing the global financing gap compared with other
financial solutions described in this book, efforts in this area have
experienced the least progress over the past 10 years.

Realigning expenditures will require coordination across borders to identify,

mitigate and redirect expenditures that damage ecosystems and wildlife.
Rarely are the drivers of harmful biodiversity practices isolated within a
single nation, but rather the result of international trade, demand and
market competition. The public sector can serve a crucial role in realigning
expenditures by setting national frameworks that explicitly commit to
phasing out subsidies harmful to biodiversity and require businesses
to report on their total impact on biodiversity. The private sector can
complement these efforts by realising the material value of biodiversity
conservation within businesses and thus incorporating biodiversity
criteria within risk management and supply chain management decisions.
This crucially requires all sectors to internalise their dependencies on
biodiversity, recognise the value of genetic resources, and scale up
monitoring and evaluation. It will be difficult to identify and realign all areas
of harmful biodiversity spending, but it is necessary to significantly raise
the commitment to improving biodiversity realignment mechanisms in
order to fully close the global biodiversity financing gap. Even focusing
on only realigning the most harmful expenditures by 2030 could yield
substantial progress towards a world in which biodiversity is sustainably
managed for the long term.

156 157
 Avoid

7
158 159
 The notion of avoiding future expenditures generally applies to situations
in which a particular intervention or investment in the short or medium
term may result in large future savings or prevent a significant loss of future
revenue. Measures include investments in preventive actions such as green
infrastructure, invasive species mitigation, and eliminating or amending
existing counterproductive taxes.
The state of play
Upfront investments in ecosystem health can help to reduce the annual USD
4.3–20.2 trillion estimated value of global ecosystem services lost between
1997 and 2011 (Costanza et al. 2014). Land-use change, land degradation
and other activities harmful to biodiversity have direct and indirect effects
on human systems, such as global supply chains, food systems and public
health (WEF 2020c). Preventing future pandemics and ecosystem collapse
necessitates that public and private actors take steps to avoid future
expenditures related to biodiversity loss (IPBES 2019). As such, calls for
mainstreaming climate change and biodiversity loss into conventional
financial analysis have increased. Over the last twenty years, the number
of climate-related case filings, including actions to compel disclosure on
climate risks in investor materials, has increased from low single digits
to over 150 a year (Burgess 2020).
Governments can avoid future expenditures by introducing tax revenue
generation tools to mitigate biodiversity loss, such as taxes for harmful
production practices that depend on natural resources and taxes for
consuming products harmful to biodiversity. Estimates based on the OECD
PINE database suggest that 59 countries implement biodiversity-relevant
taxes, which generate USD 7.7 billion per year (OECD 2020b). Other policy
measures that governments employ to realise future cost savings through
targeted interventions in the present day include border controls to stop
invasive species introductions and related fees and charges imposed on
shipping vessels, which seek to prevent the much larger costs of managing
invasive species once they have become established.
Other options for public and private investors in conservation include
upfront investments in policy, insurance, and infrastructure targeted
towards preserving ecosystem service benefits and natural habitats.
Within this group of tools, governments can introduce biodiversity-relevant
subsidies in natural-resource sectors such as forestry and agriculture. The
OECD PINE database estimates that 25 countries so far have implemented
176 environmentally relevant subsidies (OECD, 2020). The private sector
is beginning to invest in protecting environmental assets to avoid future
costs that could impact returns to shareholders. Natural disasters are often
caused or exacerbated by ecosystem degradation from human activity, such
160
as desertification. Other innovative mechanisms, such as investments in
green infrastructure through environmental impact bonds, also represent
ways in which national and subnational governments, and associated
private and civil society sector partners, can avoid future costs related
to biodiversity impacts.
While several governments and private institutions have taken preventive
measures to reduce future biodiversity loss, these efforts must be scaled
up and adapted to a wider variety of situations. As these measures are
operationalised, governments should proactively involve local communities
in their conservation strategies to ensure activities mitigate risks related
to a lack of community commitment. Indigenous groups and local property
owners alike are important sources of knowledge on their surroundings.
Community-based conservation can increase the impact and longevity
of conservation activities while preventing future costs associated with
the loss of cultural identities for groups in biodiverse areas. Indeed, involving
community participation as a part of sustainable economic transitions for
post-economic slowdown recovery plans, which might be needed following
the COVID-19 pandemic, could generate an estimated 395 million new jobs
related to sustainable economic transitions (WEF 2020d).
A brief history
Biodiversity-relevant taxes levied to increase the cost of using natural
resources or penalise harmful emissions are applied in 56 countries across
the world, with the bulk of the instruments in the United States and Europe
(OECD 2020b). Fees and charges for natural area use, such as national
park entry fees and hunting licenses, are widespread, with the number
of countries using them growing from 11 to 48 in the last 40 years (OECD
2020b). These are some of the most widespread measures used by
governments to reduce the future costs of dealing with environmental
degradation.
Specific examples have occurred in each category on both the national and
international stage, and support for taxes on natural resource use has grown
steadily. In 2016, the International Monetary Fund called for a carbon tax
on shipping and air travel (Guardian Environment Network 2016). Taxes on
fertiliser and pesticides have existed in Denmark since the 1990s, and taxes
on timber and water are currently and have been historically used to control
unsustainable resource consumption (UNDP 2020a; UNDP 2020b).
Environmental impact bonds, which focus on private sector financing of
measures to avoid future costs, were first used in the United States in 2016
and have since been used for stormwater and forestry projects.
161
 Criteria 1. Level
The table below presents a framework that can be used to analyse the The level criterion describes whether expenditures will be avoided by a
different mechanisms for avoiding future biodiversity expenditures. mechanism that is implemented by the private sector, the public sector
The framework uses four criteria as follows: (either nationally or internationally), or both.

1. Level: At what level will biodiversity expenditures be avoided? Options:

2. Direct or mainstreaming biodiversity: How will costs be avoided?
3. Potential: How much expenditure on biodiversity could be avoided?
4. Performance-based: Are payments made before or after avoided
costs are realised?
Private National International Multi-sector
The following pages provide an explanation of these criteria and how Public Public collaboration
they can be used to understand mechanisms for avoiding future
biodiversity expenditures. Private sector avoidance involves the reduction of future spending through
mechanisms principally implemented by private actors, while public sector
Table 11. Avoid future expenditures – principles and criteria avoidance is implemented by public entities. International avoidance
mechanisms are those implemented by bilateral or multilateral ODA
Principle Effective / Efficient Target Appropriate providers. Finally, multi sector collaboration involves solutions implemented
through collaboration across all sectors. Avoidance mechanisms are
Criterion Level Avoid potential Performance-based typically implemented under the authority of private and/or public
At what level What is the scale Are payments made sector agencies.
(private, national public, of expenditures that before or after avoided
international public,
or multi-sector
can be avoided? costs are realised?
2. Direct or mainstreaming biodiversity
collaboration) will
biodiversity expenditures Mechanisms to avoid future expenditures often come in the form of direct
be avoided? investment in creating positive biodiversity outcomes. Other avoidance
mechanisms indirectly mainstream biodiversity conservation through
Direct / Mainstreaming investing in environmentally friendly policies or activities that realise
Will expenditures be biodiversity co-benefits.
directly avoided by biodiversity
conservation activities? Options:
Or mainstreamed through
other sectors?

Direct Biodiversity
biodiversity mainstreaming
investment investment

Direct biodiversity investments avoid future expenditures by channelling

funding to conservation activities targeted to directly yield positive
biodiversity outcomes. For example, invasive species fees and charges often
fund programmes that combat the spread or introduction of those species.

162 163
 Biodiversity mainstreaming measures may reduce the need for future 4. Performance-based
biodiversity conservation expenditures through sustainable investments
or policies that have non-biodiversity primary purposes. For example, This criterion answers the question of whether the provision of
green infrastructure assets in urban areas may not ostensibly seem like funding is based on performance related to biodiversity conservation
conservation investments, but in fact, certain types of green infrastructure and ecosystem service provision.
assets can create mini-habitats for urban pollinators or can better regulate
hydrological flows. Options:

3. Avoiding potential expenditure

Non-performance- Performance-
The avoiding potential future biodiversity expenditure criterion describes based based
the degree to which a mechanism may help reduce the need for future
investments in biodiversity conservation. To a certain degree, all delivery mechanisms are related to performance
in the sense that there is an expected outcome from funding (for example,
Options: grants given in support of capacity-building activities are based on the
expected result that capacity will be built). Performance-based delivery as
discussed here, however, means that delivery of finance is conditional upon
the already executed or expected delivery of outcomes related to levels
Low Medium High of provided ecosystem services or impacts on biodiversity conservation.

Avoidance mechanisms with low avoid potential only result in a small

reduction in necessary expenditures on biodiversity but may indirectly
benefit biodiversity in other ways. Examples of this include tax policies
implemented for goods with inelastic demand, meaning that the
governments’ attempt to minimise future impacts from harmful activities
will yield small returns. Those with a medium degree potential, such as
environmental impact bonds, have the ability to avoid a moderate amount
of future costs.

Mechanisms that have a high avoid potential, such as environmental

insurance or invasive species fees and charges, can avoid large amounts
of future spending on biodiversity conservation.

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 A guide to avoiding future expenditures Taxes on pesticides and fertilisers work to limit production or consumption
practices that are not connected to resource extraction but still conserve
biodiversity. While pesticides and chemicals play a vital role in agriculture,

Taxes for avoiding future

their toxic ingredients have harmful effects on nearby water sources and
animal species and can enable the spread of disease (UNDP 2018).

biodiversity expenditures
The EU’s Common Agricultural Policy has introduced both taxes and
supporting policies to help farmers minimise the use of pesticides,
in order to promote sustainable farming.
To curb overproduction or overconsumption of economic activity harmful
to biodiversity, governments can introduce taxation systems that raise In the tourism sector, taxes can catalyse investments in more sustainable
the cost of engaging in these activities. Biodiversity-relevant taxes have forms of tourism, in addition to raising funds for nature-friendly tourism
a ‘double-dividend’, in that, in addition to being a source of revenue for infrastructure. New Zealand’s eco-tax splits proceeds from an international
future conservation activities, they can also regulate the amount of traveller tax between sustainable tourism infrastructure and natural area
environmentally harmful production and consumption (UNDP 2018). protection (OECD 2018c), and Ecuador and Costa Rica’s airline and ship
This is because taxes for biodiversity conservation also allow governments entry fees fund their respective national conservation projects.
to address the costs of negative externalities through generating revenue
from the creators of externalities. Taxes for conservation-friendly outcomes When creating tax structures, governments must be careful to avoid
can either be implemented on ecosystem extraction or reduce non- unintended adverse outcomes. Although governments should and can
extraction-related human impacts on ecosystems. use a combination of tax policies, they should ensure that they do not
overcomplicate their tax structures so as to lead to limited compliance and
Taxes on forestry and water provide examples of directly taxing natural effectiveness. This problem is prevalent in developing countries, where the
resources. The introduction of a forestry tax in Cameroon paved the way complexity of the tax system has limited governments’ ability to extract
for the government to introduce stricter timber production zoning in revenue from their core economic activities (UNDP 2020).
the country’s forests, which in turn enabled them to better manage their
previously ailing forestry sector (World Bank 2009). In effect, increasing
the cost of production limited timber activity allowed the government
to appropriately capture funds, which were then allocated to sustainable
forestry management. Forest tax programmes can either require firms
to pay pre-harvest or post-harvest taxes or offer tax breaks to incentivise
sustainable production practices (UNDP 2018). Stumpage fees,
concession fees or area taxes, and royalty payments all involve firms
paying governments pre-harvest for the use of public land, either by ‘stump’
(Lange 2004), by contract (FAO and ITTO 2011), or through payments for
the right to use land (Mbugua 2003). Export levies, or other types of fees
applied on processed goods, are post-harvest taxes on the forestry industry
and allow governments with high cases of illegal forestry an opportunity
to capture otherwise obscured forestry revenue (UNDP 2018).

For water conservation, governments can implement taxes based on

household or industrial water consumption to fund sustainable watershed
management. In countries where water utilities are publicly owned,
water fees can be seen as taxes where a portion of them is earmarked
for payments for ecosystem services programmes, such as in the case of
Mexico’s hydrological environmental services programme (UNDP 2020a).

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Case study Costa Rica isn’t the only Latin American country Learn more While the EU’s policies directly address climate

Costa Rica’s 3.5% tax Alignment of pesticide

to implement a carbon tax. In 2016, Colombia change or biodiversity goals, other countries’
put in place a tax of USD 5 per tonne of emitted policies target pesticide use through food

on carbon emissions and fertiliser policies to

carbon, which created USD 148 million in revenue security objectives. Seychelles, for example,
in 2017 (Barbier et al. 2020). Colombia reinvests imported over 70% of its food, most of which was

environmental goals in
a quarter of this revenue in direct conservation processed and nutrient-deficient, contributing
Deforestation is the largest source of carbon and climate change mitigation efforts, and to the country’s high obesity rate (FAO 2015).

the European Union, India,

emissions in most tropical countries. In Costa another 5% in its protected areas (Barbier et Ensuing agriculture policies encouraged
Rica, forest cover was reduced from 86% to al. 2020). production to reduce reliance on imports,

Sri Lanka and Seychelles

21% of Costa Rica’s territory from 1940 to 1987 and thus incentivised overuse of pesticides in
(Dwyer 2019). Costa Rica’s 3.5% tax law on Seychellois agriculture. As a result, nitrogen,
all hydrocarbons partially funds the country’s potassium and phosphate use skyrocketed from
payments for ecosystem services programme, Overusing fertilisers leads to several negative 8.5 kg/hectare in 2006 to 79 kg/hectare in 2015
which works towards reforestation efforts. It is environmental impacts, the most common of (FAO 2020). To respond to these pollution levels,
a central policy for the nation’s goal of reaching which are soil quality degradation and water Seychelles proceeded to enact the Seychelles
carbon neutrality by 2021 (Irfan 2018). pollution. To reduce these damages, multiple National Agricultural Investment Plan to focus
countries are introducing policies to ensure that on six investment areas, including “increased and
The structure of the tax provides additional fertiliser usage is either less or not harmful to sustainable use of agricultural land” and “more
benefits beyond reaching the stated goal. surrounding environments. The EU’s Common appropriate use of fertilizers and chemicals”.
First, the reduction of fossil fuel use means Agricultural Policy (CAP) has three of its nine
fewer carbon emissions in general, which objectives focused on the environment, namely India and Sri Lanka’s fertiliser subsidies were also
creates massive benefits for Costa Rica’s local climate mitigation and adaptation, natural based on food security goals, with both countries
environment. Second, the taxes have raised resource management, and biodiversity subsidising the cost of imported fertilisers. Sri
USD 26.5 million annually, 11% of all government protection. It successfully decreased fertiliser Lanka’s policies lowered urea or nitrogen costs,
revenue in 2018 (FONAFIFO 2019; Dwyer 2019). usage between 1990 and 2014, which has led to causing nutrient imbalance and soil productivity
Third, all proceeds from the tax finance Costa improved local water quality. Recent legislation decline due to urea overuse. To promote efficient
Rica’s National Forest Fund (FONAFIFO), has expanded upon fertiliser use restrictions fertiliser use, Sri Lanka’s Ministry of Agriculture
which provides reforestation incentives and (European Commission 2019a). In the most passed a policy to promote the Integrated Plant
deforestation disincentives to individuals and recent revision to the CAP, farmers will have Nutrient System and encouraged production
businesses. From 1997 to 2018, FONAFIFO paid access to a Farm Sustainability Tool for Nutrients, of local phosphate fertilisers to balance out
out USD 500 million to landowners covering which will give recommendations and alerts nitrogen overuse (Wijewardena 2006). India
nearly a quarter of the country and 1 million on nutrient use for avoiding greenhouse gas acknowledged in a 2016 report to the Ministry of
hectares of mature tropical forest in payments emissions and nutrient leakage. Regulation (EC) Agriculture that fertiliser overuse leads to water
for ecosystem services. The payments support No. 2016/0084 will apply stringent standards pollution, increased greenhouse gas emissions,
a range of activities, paying landowners for to all possible nutrient inputs, including both animal health disorders and decreases in crop
agroforestry, conservation of existing forests, chemical fertilisers and biostimulants (European productivity (India Ministry of Agriculture 2016).
and reforestation of degraded lands. By 2013, Commission 2019b). The EU also plans to halve The report recommended to revise fertiliser
the carbon tax, along with other policies, helped pesticide use and reduce fertiliser use by 20% subsidies to encourage sustainable use,
recover Costa Rica’s forests to 53% of total land by 2030, according to working draft plans on incentivise biofertilisers and promote integrated
area (Barbier et al. 2020). pesticide use for biodiversity-positive goals nutrient management.
(The Western Producer 2020).

168 169
 Invasive species policies,
LEVEL
Learn more The economic costs of COVID-19 have been

Wildlife illegal trade

extensive and are not yet fully realised, resulting
fees and charges in the shutdowns of national economies, high

and COVID-19
levels of unemployment, the loss of many
businesses, and human suffering. The IPBES
Invasive species are alien organisms that outcompete native species for
DIRECT OR MAINSTREAMING estimated that the cost of zoonotic disease
BIODIVERSITY resources in new habitats (CBD 2020b). Their ability to consume more
COVID-19 had its first recorded case in Wuhan, emergence is likely to exceed USD 1 trillion
resources, and reproduce rapidly as a result, makes them a significant
China in November 2019, and went on to infect annually. The risk of future pandemics could be
driver of biodiversity loss (IPBES 2018). They can produce extensive
many millions of people all over the world, with significantly lowered through global strategies
environmental damage including, but not limited to, negative impacts
extraordinary rates of spread and relatively high focused on biodiversity conservation (IPBES
on ecosystem services, nutrient cycling and pre-existing plant-animal
virulence (Davidson 2020). Zoonotic diseases 2020). The necessary biodiversity conservation
POTENTIAL relationships. Invasive species are estimated to cause billions of dollars in
such as COVID-19 are exceedingly common, and public health surveillance response to
damage every year (USDA 2020). In the United States alone, USD 40 billion
making up 60% of emerging infectious diseases protect against similar future outbreaks are
is lost annually in crop production and forestry damage by invasive species,
and 70% of new human pathogens detected in estimated to cost USD 22– 31 billion annually,
and much more is estimated to be derived from damage to infrastructure
the last three decades (Fine and Kang 2020; over the next 10 years (Dobson et al. 2020;
and loss of ecosystem services (Paini et al. 2016). Even in protected areas,
IPBES 2020). Land-use change, primarily driven IPBES 2020). This however is only a fraction
invasive species pose an increasing threat to biodiversity. Fewer than 10%
by agricultural expansion and urbanisation, has of the estimated economic costs of over USD
of the existing protected areas are currently home to alien species, but
caused the emergence of more than 30% of all 8–16 trillion incurred in 2020 from the COVID-19
more than 80% of protected areas are vulnerable to at least one invasive
new diseases reported since 1960 (IPBES 2020). pandemic (Dobson et al. 2020).
population already established within 10 km of their boundaries (Liu et al.
Larger-scale environmental degradation, such as
2020). Moreover, evidence shows that the rate of invasive species spread
deforestation in the Amazon, has also been linked The illegal wildlife trade market trades over
has continued to rise rapidly in recent decades, driven mainly by increases
to the spread of infectious diseases such as 35,000 species that are protected under the
in global trade (Seebens et al. 2018). Immediate investments in preventing
malaria (MacDonald and Mordecai 2019). Convention on International Trade in Endangered
or eradicating invasive species can lead to future cost savings for food,
Ecologists found that when biodiversity Species of Wild Flora and Fauna rules (UNODC
water, health and ecological systems (US Department of the Interior 2019).
decreases and species become extinct, those 2020). Wildlife crime also extends to the illegal
that tend to survive are more likely to spread harvesting and trading of non-protected species,
In the United States, several states have programmes to combat invasive
pathogens to humans. Species such as rodents, as well as the domestic poaching and sale of
species at their point of entry. In California, invasive zebra and quagga
bats and primates are all known to increase as protected species. The Financial Action Task
mussels attach themselves to the bottoms of ships, enabling their
biodiversity decreases in a landscape Force estimates the annual value of the illegal
populations to grow in public water systems. In response, a California
(Tollefson 2020). wildlife trade to be at least USD 7–23 billion,
law charges a USD 1000 fee on all ships arriving at Californian ports from
around a quarter of the size of the legal wildlife
places outside Californian waters. The revenue flows to programmes that
Many of the initial cases of COVID-19 were trade (FATF 2020).
implement safety and control measures that prevent ships bringing in
clustered around a wet market in Wuhan and
mussels and other invasive species (CDTFA 2020). Programmes like these
brought international attention to the trade Combating the illegal wildlife trade market is
help jurisdictions lock down and prevent invasive species from spreading
of pangolins, which, since the collapse of the also a governance issue that requires high-level
before they become a problem, thereby preventing the need for extensive
elephant ivory market in China, have become political commitment both nationally and
tracking and removal initiatives in the future. Efforts focused on limiting
the most trafficked animal in the world. Over internationally since much of the trade crosses
the entry of invasive species by trade or travel are well supported by
one million pangolins have been poached over multiple political boundaries (World Bank 2019b;
international initiatives. The International Convention for the Control and
the last decade (Nuwer 2020). Furthermore, FATF 2020). The illegal wildlife trade is but
Management of Ships’ Ballast Water and Sediments was implemented in
2019 was a landmark year for both the number one of the ways in which human impacts on
2017 with the help of the International Maritime Organization. Elements
of illegal pangolin scale seizures and the size biodiversity are accelerating the spread of
of both CBD guidance and International Plant Protection Convention
of those seizures, breaking records in both diseases. Others include development of
standards are prime examples of institutions supporting and suggesting
regards (Bale 2020). Pangolins are suspected previously untouched land, which has impacted
invasive species policy (CBD 2020b). Other programmes emphasise
as the initial touchpoint for COVID-19 as exotic animals’ habitat size.
restoration projects where invasive species have taken over.
some were found to harbour a similar strain
(Anderson et al. 2020).

170 171
 Green insurance
LEVEL
Case study immediately be made to the trust, up to a

Mesoamerican Reef
maximum of USD 3.8 million. For example,
if wind speeds reach 110 knots, then 40% of
In recent years, the private insurance industry has started to play a larger
insurance
the maximum payout would be delivered,
role in protecting biodiversity, benefitting from a better understanding
while if they reach 130 knots and 160 knots then
of the relationship between habitat degradation and disaster risk. From
DIRECT OR MAINSTREAMING 80% and 100% of the maximum payout would
BIODIVERSITY an operational perspective, insurance companies are starting to consider
Coral reefs are important natural barriers to be delivered, respectively (Gonzalez, 2019).
biodiversity both in how they calculate premiums and in the types of
hurricanes as they reduce the energy of waves
products that they offer. As awareness of ecosystem services loss and
impacting the coastline by up to 97%. The Funds from the insurance payout are to be
climate change have increased, so has the realisation that these issues
Mesoamerican Reef in Mexico is the second managed by the Coastal Zone Management
have measurable impacts that ought to be reflected in the calculation of
largest barrier reef in the world and protects Trust, and expenditures will be distributed across
POTENTIAL insurance premiums and the creation of new insurance products. Insurers
Mexico’s Caribbean coastline, which supports a range of projects. The terms state that 50% of
are expected to accurately price risk and advise customers upon risk and
a USD 10 billion tourism sector, from the payout funds must be used for preliminary
are thus pivotal in preventing risks from being realised by advocating for
environmental risks such as hurricanes. rehabilitation and restoration of beaches and
better biodiversity conservation.
However, pollution, bleaching, and other types 50% must be used for similar activities for the
of environmental degradation, as well as the reef. Priority will first be given to assessing
Insurers in general provide insurance coverage in the event that an
extreme storms that the reef protects against, damage, followed by removing debris, nurturing
asset is damaged or destroyed, and from that point of view insuring
put the reef at risk. This has led the Mexican broken corals, and replanting the corals.
an environmental asset (for example, a coral reef) is no different from
government, TNC, and others to establish the
insuring a house or an automobile. However, insurers may also invest
Coastal Zone Management Trust, which, in The insurance product was a combined effort
directly in biodiversity conservation when such investments are likely
addition to its already established activities on the part of several Mexican universities,
to lower their expected future insurance pay-outs resulting from damage
focusing on ongoing maintenance of the reefs stakeholders from the tourist businesses, TNC,
to that asset. The Nature Conservancy, AXA XL, and the University of
and beaches, will now make payments to Swiss Re, and others. The administration of the
California at Santa Cruz recently assessed the protection provided by
beneficiaries in the event that a storm hits to payouts and delivery of the funding is managed
mangrove forests. They found that introducing insurance products to pay
repair the coastline and reef damages. The by the trust, while overall support is provided by
for restoration could avoid the costs related to mangrove loss in natural
solution is also cost-effective, with estimates the Mesoamerican Reef Fund, an international
disasters (TNC 2020). Pay-outs for their restoration could be delivered to
from TNC stating that while repairing the group of conservation agencies that works
policyholders’ bank accounts within a 10-day period following a storm.
reef could cost anywhere from USD 50,000– together to raise and allocate funds for
150,000, an artificial measure like a seawall protection of the Mesoamerican Reef ecoregion.
Insurance provides protection against the down-side risks associated with
could easily cost USD 1 million per half mile
particular events, and in doing so requires consumers of insurance products
of protection (Smith, 2018). This type of insurance product could mark the
to take precautionary measures to limit disaster risk by engaging or
beginning of a series of similar steps towards
investing in conservation activity in the present.
Funding for the Coastal Zone Management climate resilience, if it is able to successfully
Trust comes from an existing fee on beachfront bring together public and private actors (and
property owners with contributions from both their funds) to preserve natural assets that
local government taxes and from the local benefit human infrastructure and associated
tourism industry in Cancún and Puerto Morelos. economic activity.
Part of this will cover the cost of insurance
premiums, paid to the Mexican-based insurer
Afirme Seguros. The parametric insurance
product states that in the case that a storm with
wind speeds in excess of certain benchmarks,
starting with 100 knots, hits predefined areas
covered by the insurance, a payout would

172 173
 Biodiversity-relevant positive subsidies
LEVEL
Learn more Municipalities can incentivise private

Biodiversity-relevant positive subsidies can incentivize economic activity
that leads to positive biodiversity outcomes. Such activity can include
forest management and reforestation, organic or environmentally-friendly
DIRECT OR MAINSTREAMING agriculture, pesticide free cultivation, and land cultivation (OECD, 2020).
BIODIVERSITY
These activities might use economic support from subsidies to channel
funding to activities via Payment for Ecosystem Services (PES) programs,
where funds, from beneficiaries or users of ecosystem services, are
delivered to those who conserve these services (OECD, 2020c).
Fundamentally, successful subsidy policies tare able to link payments
POTENTIAL or support to compliance with environmental standards (IEEP, 2009).
According to the OECD’s PINE database, biodiversity-relevant positive
subsidies contribute USD 0.89 billion per year to total biodiversity financing
(OECD, 2019a). A subset of these subsidies represents government support
for beneficial agricultural practices (OECD, 2019c) Biodiversity-relevant
subsidies make up a significant portion of biodiversity-relevant public
funding attributed to sustainable land management and containment, as
well as noise and water pollution (OECD, 2020c). Of course, the volume and
size of positive subsidies is still insignificant when compared to the size of
subsidies awarded to production practices that are harmful to biodiversity.
Even if a subsidy has biodiversity-positive intentions, recent examples have
shown that the outcomes do not necessarily correlate with the objective.
In the case of Chile’s tree-planting subsidy, while forest area more than
doubled between 1986 and 2011, carbon sequestration increased only
by 1.98% and native forests decreased in size by 13% (Lombrana, 2020).
Although reforestation can offer some ecosystem benefits, it in itself will
not be beneficial if forests are monoculture plantations as opposed to
native, biodiverse forests.
Green infrastructure
Given the accelerating pace of global
urbanisation, more efficient land and resource
management through green infrastructure
will be key to avoiding future costs related to
severe climate change effects in addition to
resource constraints. Prominent examples of
green infrastructure include bioswales (natural
channels for stormwater run-off), green and
blue spaces, and urban wetlands. Green
infrastructure investments can provide a variety
of ecosystem services. These services range from
stormwater protection, protection of pollinators,
and natural coastal barriers, all of which can help
cities avoid costs related to future climate events
or overdevelopment. To avoid expenditures
related to unsustainable growth, local
governments and developers should consider
ways to preserve and/or replicate ecosystem
services such that urbanised land does not
lose biodiversity or the services that natural
habitats deliver.
For example, assets such as green roofs,
increased tree plantings, unmanicured green
areas, rain gardens and permeable pavements
can be critical components of cities’ climate
adaptation plans (NRDC 2013). Some cities
have promoted green infrastructure investments
to commercial property owners, arguing that
more sustainable development can lead to
higher rental rates, retail sales and property
values, in addition to lower utility implementation
and development lifecycle costs (NRDC 2013).
With regards to promoting biodiversity, such
development can create mini habitats or
corridors for pollinators or species passing
through urban areas.
construction of green infrastructure through
offering tax credits, rebates and development
incentives (NRDC 2013). New York City offers
a Green Roof Tax Abatement equal to USD 4.50
per square foot of green roof space, which is
capped at USD 100,000 (NYC Department of
Finance 2020). Such infrastructure absorbs
stormwater, combats the urban heat island
effect and provides insulation for homes (NYC
Department of Finance 2020). The stormwater
absorption ecosystem service is believed to
lead to avoided costs, since the roofs prevent
rainwater from overflowing impervious street
and sidewalk surfaces.
To scale current green infrastructure efforts,
policymakers and private development firms
should communicate their investment potential
by monitoring the effectiveness of current green
infrastructure assets in producing ecosystem
services and positive biodiversity. Local
governments must ensure the equitable
distribution of green infrastructure and aim for
all neighbourhoods within their jurisdictions
to have access to ecosystem service benefits
(Shi 2020). Local governments and engineers
should also be educated on the benefits of green
infrastructure assets so they can identify ways
in which nearby communities can benefit from
them as well as plant and animal species.

174 175
 Environmental impact bonds
LEVEL
Case study ecosystem services and valuation benchmarks

The forest resilience

to calculate pay-outs, including increased water
quantity, reduced sedimentation, reduced
Environmental impact bonds (EIBs) are a way to raise financing from public
bond for wildfire
damages from flooding, added hydropower,
and private capital in domestic markets for environmental projects that
improved wildlife habitat and others (Blue Forest
enable both private and public stakeholders to avoid future costs, be it
management
DIRECT OR MAINSTREAMING Conservation 2017).
BIODIVERSITY through forest restoration projects that mitigate wildfires, or urban green
infrastructure solutions that lead to better storm water management.
On the ground, the FRB is built so that the USFS,
Like a conventional bond, the principal raised through an EIB is required
Forest restoration often involves replanting utilities and states reimburse a predetermined
to be repaid, with interest added, over a set period. EIBs differ from regular
native tree species and increasing plant biomass percentage of restoration costs once restoration
bonds in that bond issuance proceeds are used for ‘green’ projects that
and forest cover. However, in certain forests, work is completed, and utilities make additional
POTENTIAL generate environmental and financial returns, and are only paid in the event
including many in the western United States, pay for success payments based on achieved
that avoided costs can be realised (Gonnella 2017). EIBs are often a source
forest restoration concerns removing excess outcomes, such as measurable increases in
of risk capital for investments, providing governments or other investors
vegetation to return forests to a more natural water volumes. In November 2018, the first pilot
with a way to access additional capital for projects that will reduce future
state. In these forests, the combination of arid FRB was executed, which was a USD 4 million
costs associated with resource management (Herrera 2017). These cost
weather conditions and the natural fire cycle five-year financing paying a 4% interest rate
PERFORMANCE BASED savings ultimately benefit public institutions, as well as investors who can
results in forests that are naturally sparse, where (Mandle et al. 2019). This FRB targeted
receive a portion of realised savings.
dead and decomposing plant matter have limited restoration activities on Tahoe National Forest
opportunity to build up before being consumed land in the North Yuba watershed in California.
The repayment of EIBs depends on pay-for-success (PFS) contracts that
by fire. Removing dead plant matter can The issuance of the first FRB required the
link the payment for delivering a service to the achievement of measurable
simultaneously improve landscape resilience participation of multiple stakeholders
outcomes. In a PFS contract, upfront investors, who provide capital through
to fire and make it easier to manage fire when representing a variety of disparate interests,
the purchase of a bond, are paid back at pre-agreed varying rates by public
necessary to protect people and property including CSAA Insurance, Calvert Impact
entities depending on the project’s success (Gonnella 2017). Connecting
(Mandle et al. 2019). Other benefits include Capital, The Rockefeller Foundation and the
payments to project outcomes incentivises investors to ensure that
improved water quantity and quality, avoided Gordon and Betty Moore Foundation.
projects have positive environmental impacts (CPIC 2019). In some
carbon emissions, protected habitat and species, Beneficiaries from the forest restoration
projects, investors may be repaid at a premium for extremely successful
and community resilience. The Forest Resilience measures who agreed to repay investors
projects or receive less money back for partial success. In others, investors
Bond (FRB), an initiative of Blue Forest included US government agencies such as
face the risk of not receiving any repayments if certain benchmarks are
Conservation in collaboration with Encourage the USFS, non-profits such as the National
not met. Preliminary examples of EIBs are largely funded by philanthropic
Capital and the World Resources Institute, is a Forest Foundation, and local water and energy
institutions or philanthropic wings of commercial institutions who are
public-private partnership that enables private utility companies. Finally, the development,
willing to take on the risk in the pursuit of environmental or social benefit
capital to finance forest restoration in the United implementation, and assessment of the project
(Quantified Ventures 2018). Often, these projects work with governments
States and is especially targeted at wildfire and associated interventions also involved a
who stand to benefit from savings derived from the project. However, EIBs
prevention. The FRB connects private capital large number of stakeholders, including state
also offer ample growth potential for commercial ventures in the future.
from land managers and other beneficiaries with forest agencies, research partners and
certified implementation partners to increase community groups.
EIBs are generally used for projects that can avoid future expenditures
the pace and scale of restoration beyond what
while generating shorter-term returns. Although the application of EIBs
government funding alone can achieve. Overall,
to biodiversity conservation has yet to be scaled, the structure of the
the FRB leverages investor capital to reduce
instrument is well suited to a range of biodiversity projects since they
the impacts of uncontrolled fires while bringing
encourage projects with cost savings from which both governments and
together a variety of beneficiaries, including the
investors can benefit. Indeed, many of the existing EIBs have some indirect
United States Forest Service (USFS), electric
or direct positive impacts on biodiversity.
utilities and water companies, to share the
costs of forest restoration. The FRB allows
stakeholders to choose from a variety of

176 177

Case study
Storm water
management in Atlanta
and Washington DC
Storm water management is an especially
challenging issue for cities that consistently
receive heavy rainfall but lack the sewage
infrastructure to handle large volumes of water.
System overflows can generate a variety of
negative impacts on cities and riparian systems,
ranging from urban floods to environmental
degradation. In areas where sewage flows
into nearby bodies of water, poor storm water
management can severely pollute watersheds
and disrupt ecosystem health (Quantified
Ventures n.d.)
Green infrastructure offers a way to manage
storm water while providing ancillary benefits
not provided by traditional (‘grey’) infrastructure.
Some of these solutions include rain gardens,
green roofs, and permeable pavement, among
others, providing green spaces to communities
that both sequester carbon and absorb storm
water that would otherwise overwhelm their
sewage systems. In order to finance these green
infrastructure solutions, the District of Columbia
Water and Sewer Authority (DC Water) and
the Atlanta Department and Watershed
Management (DWM) issued EIBs in which
payment was tied to the infrastructure’s
performance in mitigating storm water run-off.
Issued in 2016, DC Water’s USD 25 million,
30-year privately placed EIB financed the
construction of green infrastructure for storm
water management in the Washington, DC area.
Nominally, the bond paid a 3.43% coupon to
investors, a rate equivalent to the market rate
of municipal bond issues by the authority.
178
Environmental impact assessments
LEVEL
However, actual pay-outs to investors are subject
to either a multiplier or a discount factor, which is
a function of the volume of storm water flowing
Environmental Impact Assessments (EIAs) are regulatory tools that require
through the sewage system during peak storms.
developers to assess the potential anthropogenic impact a project could
Under this three-tier performance payment
have on the nearby environment, or impacts that would not have occurred
structure, if storm water flow was found to be DIRECT OR MAINSTREAMING
if the project never took place (Komnikova 2016). The typical steps within BIODIVERSITY
above a certain threshold (that is, the green
an EIA are for the developer to describe the project and all possible impacts
infrastructure performed below expectation),
(negative or positive), classify the severity of these impacts, identify
then investors would be required to transfer an
alternative construction procedures that produce the best possible
additional USD 3.3 million to DC Water, reducing
outcome for environmental and social good, and establish some type of
the effective return of the bonds to investors
ranking system to sort all possible alternatives. EIAs are critical within POTENTIAL
and reducing the cost to DC Water. Conversely,
the beginning stages of a project to prevent any development activities
if the green infrastructure performed above
that yield irreversible consequences. EIAs highlight the potential harmful
expectations in reducing water flows, DC Water
impacts of projects, and in doing so allow developers and public institutions
would make an additional USD 3.3 million
to take preventive measures such that they can avoid future costs.
payment to the investors, resulting in an
PERFORMANCE BASED
above-market rate of return (Quantified
EIAs employ a range of different methodologies, given that projects can
Ventures 2018).
span a range of industries and involve a multitude of different ecosystems.
Standardising EIAs is therefore difficult to do at a national or international
The Atlanta DWM issued a USD 14 million EIB in
scale, and each EIA methodology and team is tailored to each specific case.
2019 using a similar structure to finance six green
Some legislative bodies, such as the Environmental Protection Agency
infrastructure projects. Repayment was based
(EPA) in the US, can uphold some base requirements and procedures, but
on a two-tiered performance payment system
the success of an EIA ultimately relies on the quality of data gathered by
consisting of a base case and a high-performance
the project developer, transparency of methodologies used, the accuracy
scenario, which were both defined in terms
of a developer’s assumptions and predictions, and the qualifications
of volume of storm water captured. If the base
of personnel. EIAs must also consider a project’s tenor when assessing
case scenario unfolded, Atlanta DWM would
impact, whether it be over 10 years or 50 years, and what ways impacts
pay investors a below-market return, while a
can accumulate (Singh et al. 2020). Ultimately, an EIA’s usefulness comes
high-performance outcome would trigger an
down to whether it affects a developer’s decision. It is up to the executive
additional USD 1 million payment. In this case,
or governing authorities of the project to decide to restructure or scrap
investors receive an above-market return only
a project if it proves to be deleterious to nature. For EIAs to affect
in the event that Atlanta DWM realises greater
development processes, governments must implement regulations
economic value from the infrastructure
that enforce compliance with environmental standards.
investments than expected, as measured by
the amount of excess storm water captured
To provide some security that EIAs are adhered to during a project, some
(Quantified Ventures 2019.
institutions use EIA bonds as a surety (BIOFIN n.d.). EIA bonds are bonds
provided by the project developer that assure monetary compensation
will be provided if a project developer does not meet an agreed set of EIA
provisions. In the case where EIA provisions are not met, the bond can be
used to pay for environmental impacts, even in the case of bankruptcy
(BIOFIN, n.d.).
179
 Community-based conservation
LEVEL
It has been estimated that involving local communities and property
owners in conservation activity can contribute to the 30% increase in global
DIRECT OR MAINSTREAMING protected area coverage needed to prevent ecosystem collapse (Waldron
BIODIVERSITY et al. 2020). These efforts can be funded by ecotourism fees, payments
for ecosystem services, philanthropy, national budgets, or crowdfunding
through the communities themselves (WWF 2017). Recent spatial analysis
work shows that indigenous people currently make up less than 5% of
human population but contribute to the protection of 80% of global
POTENTIAL biodiversity due to their management of sparsely populated lands (IUCN
2019b). Community involvement can enable governments and society
to avoid non-market and market costs, related either to the erosion of
community knowledge and culture, especially in the case of indigenous
groups, or weakened long-term commitments from nearby communities
for environmental protection (Waldron et al. 2020; WWF 2017).
country’s net national income and generated 5000 jobs in remote rural
areas (Potgieter 2019). The programme has also had successful wildlife
conservation outcomes, with populations of lions, elephants and black
rhinos increasing since its inception in 1996 (Potgieter 2019).
Key to successful community-based conservation are clear land rights.
For example, the Liberia Land Authority officially certified six communities
in northwest Liberia as land-owning communities, thereby implementing
the 2018 Land Rights Act recognising local communities as owners of their
Customary Land and guaranteeing them full legal protection as private
landowners. Facilitated by IDH and funded by the Norwegian government,
communities in the region can develop their own land use plans identifying
land for agricultural production, setting aside forest for protection and
attracting new investments.

Land trusts and community conservancies can enable long-term

conservation because they tie community interests with ecosystem
health. In doing so, they pre-emptively engage all relevant stakeholders in
ecosystem protection. For either land trusts or community conservancies
to be effective, governments and communities must have a mutual
understanding of local property rights as well as long-term financing
sources. Land trusts are non-profit organisations that assist in land
acquisition or conservation easements. Most of these organisations are
community-based, which gives them the local social and environmental
context to identify land that has significant conservation value (Finger
Lakes Land Trust n.d.). They also benefit from the receipt of private
donations of land, funding and voluntary conservation agreements
with local property owners.

Community conservancies are less common but are an effective means

for governments to involve indigenous groups in national conservation
efforts. Conservancies are not national parks but are instead government-
administered land protected for certain groups. Namibia’s community
conservancies, established with the support of WWF, offer the most
prominent example of such an arrangement. Here, conservancies have a
dual objective of preserving local rights to land and offering communities
a way to contribute their environmental knowledge and wildlife monitoring
efforts (Potgieter 2019). Communities are given the authority to dictate
zoning or the extent to which predetermined hunting quotas are used and
work with the Ministry of Environment and Tourism to attract ecotourism
revenue. In 2017, the programme contributed USD 54 million to the

180 181
 Conclusion
In helping to avoid future expenditures related to environmental damage
and their associated social impacts, investors in these mechanisms can
also bolster future biodiversity budgets by freeing up previously unavailable
capital. However, if governments allocate the value of avoided costs to
purposes unrelated to or, worse, negative to biodiversity conservation,
their actions will contradict the purpose of the avoidance mechanisms
described in this chapter.

As with mechanisms related to delivering better and realigning

expenditures, it is imperative that mechanisms are regulated to ensure
transparency and are monitored to verify that these measures are truly
working to avoid future expenditures. If not, they should be modified as is
not uncommon for measures that are well-intentioned to have unforeseen
consequences both to people and to the environment. While most of the
mechanisms within the book are geared towards mitigating the current
biodiversity funding gap, the mechanisms for avoiding expenditures work
to prevent that gap from increasing. Often it is cheaper and easier to
prevent damage to biodiversity hotspots and habitats now than it is
to restore and reverse that damage in the future. Incorporating these
measures will help prevent biodiversity loss, but more attention is
required from governments and businesses to realise these cost savings
in a timely manner.

182 183
 Catalyse

8
184 185
 This chapter explores existing catalysts and institutional arrangements
that facilitate the flows of biodiversity financing and make it possible for
them to achieve scale. These catalysts may support biodiversity at the
subnational, national, and international levels across both developed
and developing countries.
The state of play
The efficacy of different biodiversity financing mechanisms will vary
from country to country, depending on domestic priorities and national
conditions. So, the governance and coordination of financial flows for
biodiversity conservation is of critical importance in optimising the
generation, delivery and realignment of funds.
In accordance with Article 21 of the CBD, Parties are required to review
the effectiveness of the mechanisms used for financing biodiversity
and to improve these mechanisms by strengthening existing financial
resources. Parties should continually aim to enhance international, domestic
public, and domestic private financial flows for biological diversity, and
appropriate catalysts can expedite progress. Countries are also required,
in accordance with Article 6 of the CBD, to develop national strategies,
plans or programmes for the conservation and sustainable use of biological
diversity, and to integrate them into relevant sectoral or cross-sectoral
plans, programmes and policies. These strategies act as key catalysts for
the support of biodiversity conservation.
A guide to key catalysts
While the work of individual stakeholder groups is important, it is most
impactful when it leverages others – a combination of their efforts will
be needed to close the global biodiversity financing gap. The catalysts
described in this chapter require a consensus among stakeholders on
best practices and on the long-term benefits of investing in conservation.
Catalysts will be more or less effective in different jurisdictions, depending
on their biodiversity needs and their capacity to implement biodiversity
finance solutions. Key catalysts listed below are grouped according to
their structure and purpose.
186
Mainstreaming biodiversity
conservation in the public sector
National Biodiversity Strategies and Action Plans (NBSAPs) are the main
public policy instrument for governments to plan and implement the goals
of the CBD. NBSAPs are a critical signal to citizens, business and subnational
governments of the priority of biodiversity to the issuing nations. To date, 191
countries, or 97% of Parties to the CBD, have developed at least one NBSAP,
but few countries have backed their plans with the necessary financing, and
effective implementation and alignment with other national priorities has
lagged. Indeed, for many countries NBSAPs are aspirational documents that
address priorities to mobilise finance towards biodiversity (UNDP 2018).
In order to act as effective catalysts for biodiversity conservation and
funding, through their NBSAPs, governments should address the following:
• National Biodiversity Finance Plans (NBFPs) should be included
within all governments’ NBSAPs. NBFPs can enable countries
to identify relevant financial mechanisms and formulate realistic
budget targets that will help achieve their conservation goals. These
plans are critical to mainstreaming biodiversity conservation across
sectors and geographical areas and avoiding project clustering
around niche ecosystems or species. NBSAPs and NBFPs should
also prioritise collaboration with the private sector and civil society
stakeholders. In doing so, they need to outline ways in which
governments can enable scaled investments in conservation. For
example, governments can lower the risk of investing in conservation
by developing appropriate tax incentives and/or guarantees.
• Governments should also prioritise reforming economic policies
that have adverse effects on biodiversity. Catalysing investments
in biodiversity requires that governments transition to economic
growth models that have minimal or net-zero impacts on
biodiversity. Understanding the all-in costs associated with
biodiversity loss is crucial to enabling these reforms, particularly
in agriculture, forestry, fisheries and other sectors that rely
on healthy ecosystems. Governments must consider, where
appropriate, the reform of subsidies that are potentially harmful to
biodiversity. While significantly reforming these harmful subsidies
may be untenable for some countries in the immediate future,
the act of identifying and assessing them is critical to begin the
global process of redesigning, greening, reducing or redirecting
more than USD 670–1,020 billion in annual subsidy flows that
are potentially harmful to biodiversity, of which approximately
USD 274–542 billion is estimated to flow to the agriculture,
forestry and fisheries sectors each year (Deutz et al. 2020).
187
 • Governments should also strengthen their regulatory frameworks
to enforce environmental standards to ensure that terrestrial,
freshwater and marine key biodiversity areas achieve better
protection by protected areas and/or other effective area-based
conservation measures, contributing significantly to the conservation
of global biodiversity (UNEP-WCMC, IUCN and NGS 2020).
• Governments should enforce policies that require public and
private compliance with environmental standards. As pointed out
by the World Economic Forum, two categories of regulations are
needed: first, regulations that prevent resource mismanagement in
commodities and raw materials and, second, regulations that require
the incorporation of biodiversity risk in financial decision-making
(WEF and AlphaBeta 2020). Through setting compliance standards
based on either specific habitats or ecosystems, governments can
after a development project has rigorously implemented the
mitigation hierarchy (avoid, minimise, restore and offset), and
with significant technical evidence to prove that the cause of
biodiversity damage is extremely difficult or impossible to eliminate.
Mainstreaming biodiversity conservation through policy planning can
be achieved not only at the national level using NBSAPs, but also at the
supra- and sub-national levels. For example, the EU Biodiversity Strategy for
2030 proposes setting aside at least 30% of EU land and sea as protected
areas, restoring 30% of degraded ecosystems, and investing 10% of the
EU’s long-term budget in biodiversity. At the sub-national level, Governor
Gavin Newsom of California has joined the call for protecting ‘30 by 30’
for his state (CA Office of the Governor 2020).

Catalytic international organisations

encourage environmental markets that drive industries that have
significant negative impacts on their surrounding environments.
In practice, this might include governments strengthening the
design and enforcement of carbon markets and nature-based climate Much of the technical assistance and knowledge exchange on biodiversity
solutions, natural infrastructure, biodiversity offsets and mitigation finance and biodiversity conservation strategies, is carried out by
hierarchy policies that channel funding from high-environmental international agencies such as UNDP, IUCN, and the OECD. For example,
impact sectors such as infrastructure or energy to conservation. the OECD national-level ‘Guidance to identify and assess subsidies harmful
• As governments develop new policies and programmes to support the to biodiversity’ and the UNDP BIOFIN Biodiversity Finance Policy and
delivery of their post-2020 national climate goals in their nationally Institutional Reviews (PIR) help countries undertake national-level
determined contributions, they should evaluate opportunities to assessments to identify and evaluate subsidies harmful to biodiversity. Over
align these with their NBSAPs, by increasing their climate ambitions the past decade, IUCN and UNDP have provided critical technical assistance
using natural climate solutions and nature-based solutions (UNDP to over 36 countries for improving the development, assessment and
2019; Seddon et al. 2019; Beasley et al. 2019). Government job monitoring of their NBSAPs. In addition, organisations such as UNDP BIOFIN
programmes and development projects can also be an important and IUCN, and bilateral and multilateral financial aid, can help cover the
part of economic recovery plans. The use of nature-based solutions capacity gaps that present obstacles to the development, monitoring and
in these cases can both support the economy and help normalise implementation of NBSAPs and NBFPs, especially in developing countries.
these alternative solutions (Lieuw-Kie-Song and Pérez-Cicera 2020).
For example, recent estimates suggest that nature-based solutions
focusing on reforestation and afforestation could generate USD
800 billion in annual revenues by 2050 (Vivid Economics 2020).
• Where possible, governments should also default to natural
infrastructure solutions in infrastructure procurement and
development projects and, in any case, require the evaluation of
natural infrastructure alternatives to conventional infrastructure
solutions, when considering investments in infrastructure.
• Governments, financial institutions and developers should
strengthen the enforcement and transparency of their no net loss
policies, to mandate that biodiversity offsets are the last option
used in all development projects. That is, economic compensation
for unavoidable damage to biodiversity should only be an option

188 189
 UNDP Biodiversity Finance Initiative
The Biodiversity Finance Initiative (BIOFIN) was created by UNDP to
direct countries on how they could finance their biodiversity goals using
evidence-based frameworks. The BIOFIN methodology is implemented
in over 35 countries and tailored to each unique country context. During
implementation of the BIOFIN methodology, countries work with their
respective ministries of finance through a bottom-up five-step approach:
1. Create a database of existing financing policies and mechanisms
2. Measure current expenditure levels for biodiversity from the
public and private sector
3. Estimate future financial needs to achieve national biodiversity goals
4. Design strategic plans to prioritise and deploy the right mix of finance
solutions based on each country’s financing potential, biodiversity
impact and feasibility
5. Implement solutions using a variety of financing mechanisms
• The Environment Ministry in Georgia saw a budget increase for
biodiversity conservation from USD 30,000 to USD 270,000.
• Mexico successfully redesigned two major environmental funds,
a national climate fund that has since seen a turnover exceeding
USD 3 million, with USD 2 million directed to nature-based solutions
for ecosystem resilience, and a green fund of Mexico City, resulting
in a saving of USD 3 million per year and a better articulated focus
on biodiversity.
• Seychelles – where the parliament formally adopted all of the finance
solutions of the finance plan – launched the first ever Biodiversity
Finance Unit in 2019 to lead the country’s Biodiversity Finance Plan.
• Indonesia capitalised on existing Islamic finance modalities – green
bonds or sukuk and alms-giving or zakat – and expanded their use
to address biodiversity financing issues, resulting in an investment
exceeding USD 2 million for biodiversity starting in 2021.
Figure 9. The BIOFIN methodology

This book discusses the last step, financing mechanisms, according to

the four approaches identified by BIOFIN. BIOFIN provides a catalogue
of finance solutions detailing mechanisms and approaches that countries
can develop, according to their national fiscal needs and priorities. BIODIVERSITY
EXPENDITURE REVIEW (BER)
BIOFIN has had positive results in a number of countries, including: How much is spent
for biodiversity?
• In Cuba, as a result of the Biodiversity Expenditure Review process,
the government approved for the first time a Specific Environmental
Accounting Standard (NEC No.11) issued by the Ministry of Finance POLICY AND
INSTITUTIONAL
and Prices. REVIEW (PIR)
FINANCIAL
NEEDS ASSESSMENT (FNA)
• The Central Bank of Sri Lanka developed the Sustainable Finance What are the drivers,
How much is needed to
policies, actors and
Roadmap with the technical assistance of the International Finance existing mechanism that
reach the national
biodiversity targets?
Corporation and BIOFIN. Both provided the foundation for soft credit influence biodiversity
facilities for biodiversity-friendly development projects and encouraged finance?

development initiatives sensitive to biodiversity. Four commercial

banks have already initiated sustainable finance schemes under
this roadmap.
• In the Philippines, BIOFIN helped fill a gap in protected area
legislation in 2018 to formally include a further 94 protected areas BIODIVERSITY FINANCE PLAN
— Which finance solutions are optimal for the country?
into law, bringing the total to 107. They consequently supported the — Why should the country adopt them – the business case?
development of underlying regulations and the formulation of a USD — How to successfully implement these optimal solutions step by step?
40 million 2020 budget proposal for protected areas.
• Through results-based budgeting processes, five coastal municipalities IMPLEMENTATION
in Guatemala increased funds available for coastal and marine Implement the solutions, achieve, and monitor finance results:
biodiversity conservation and management by over 50% from 2018 — Generate revenue
— Deliver better
to 2019. — Avoid future expenditures
Source: — Realign finance
UNDP 2018

190 191
 Mainstreaming biodiversity Learn more The first approach, which has already been

The potential role

used for decades, is adopting measures to
conservation in the private sector avoid negative impacts on key ecosystems

of development
or populations. This requires implementing
‘exclusion lists’ which explicitly protect
Despite making substantial progress in recent years, firms in the financial
agencies and banks
biodiversity, for example zero deforestation
sector and in the real economy are still in the process of assessing the
lists in funds exercised in the Amazon (PRI
biodiversity risks associated with their practices and evaluating the
2020b). Committed agencies would also have
opportunities inherent to more sustainable economic models. This growing
The landmark 2019 IPBES Global Assessment to implement biodiversity safeguards and
understanding, combined with more sophisticated government regulation,
warns that biodiversity conservation requires due diligence along with environmental and
will likely lead to more thoughtful valuation of biodiversity loss to businesses
“transformative changes across economic, social, social safeguards.
and more thorough disclosure of environmental impacts. In order to achieve
political and technological factors” (IPBES 2019).
this, the Task Force on Nature-related Financial Disclosures (TNFD) is in
This paradigm of mainstreaming opens a vast The second and more innovative approach is to
the process of developing guidelines and standardising methodologies
area of opportunity for the finance sector to adopt a selective investment strategy targeting
for identifying biodiversity-related risks, which enable users to better
integrate socio-economic and biodiversity projects that integrate transformative changes
understand their firms’ exposure to transition, physical, legal and systemic
co-benefits in all economic sectors. The role in biodiversity mainstreaming and biodiversity
risks related to biodiversity loss.
of over 539 development finance institutions co-benefits by design. A selection criteria and
(DFIs), including development agencies, MDBs screening method through which institutions
Non-financial and financial companies should accompany these disclosures
and development banks will be crucial in this select these projects is required, for example
with increased investments in sustainable supply chains and better financial
task considering that the amount of finance the nature-based solutions standard by IUCN.
risk management processes. These efforts should be guided by corporate
needed for such transformative changes is in This approach also requires improved reporting
climate and nature science-based targets (SBTs), adopted by companies
the range of their financing capacities. on these biodiversity investments and
to reduce global greenhouse gas emissions and biodiversity loss, that are
establishment of a global common framework
aligned with current scientific evidence necessary to meet the goals of the
At least 28% of the USD 11.2 trillion DFI for tracking finance. One way to do so is by
UNFCCC and the CBD. Over 1000 companies have pledged to develop
investments in 2019 are highly exposed to adopting what are called the ‘Rio Markers’ by
climate SBTs. Several companies, including Kering and GlaxoSmithKline,
its financing projects’ biodiversity loss and the CBD, which use a simple scoring scale to
have started to design and align their biodiversity investment strategies,
ecosystems degradation risks (Jessop 2020). indicate if an investment can target biodiversity
policies and programmes to the SBT framework (Science Based Targets
For example, the International Development outcomes. MDBs, development agencies
Initiative 2020; Kering 2020; Segal 2020). Companies should not only
Finance Club is the largest provider of public and banks could also dedicate some effort
invest in transitioning their supply chains to be more sustainable, but should
development and climate finance globally, with to implement ex post biodiversity impact
also, in partnership with governments and civil society organisations,
USD 4 trillion in combined assets and annual monitoring and evaluation of those projects.
educate consumers on the benefits of more sustainable supply chains.
commitments above USD 850 billion. Another
200 to 500 development banks could further Finally, crucial to development banks
Governments can greatly support the mainstreaming process by putting in
magnify such financing forces worldwide. mainstreaming biodiversity finance is scaling up
place regulatory frameworks that facilitate the development of funds and
Their contributions can be summarised in two demand and support in their clients to adopt
other financial products and services focused on such areas as sustainable
complementary approaches. Development their own transformative changes. To this end,
forestry and agriculture. This can be accomplished through tax incentives,
banks represent about 10% of total global development banks could help countries,
de-risking tools, reducing subsidies harmful to biodiversity or monetising
investment and so are in an influential position local authorities or companies build their own
biodiversity benefits (Deutz et al. 2020). Governments may also contribute
to lead biodiversity financing and set targets for mainstreaming frameworks, through proper
to the growth of investment activity that supports biodiversity by passing
biodiversity goals (Mrema and Rodriguez 2020). mapping of vulnerable biodiverse areas.
legislation that provides a safe haven for asset managers who, afraid
of running afoul of their fiduciary duties, avoid any investments that
may be perceived as sacrificing financial returns in exchange for broader
societal benefits.

192 193
Case study
Policy-based
loans in Mexico
Using policy-based loans (PBLs), the French
Development Agency (AFD) is supporting Mexico
to improve its climate change mitigation and
adaptation policies. PBLs provide borrowing
member countries with flexible and liquid funding
to support policy reforms and institutional
transformations. With PBLs, the development
agency facilitates the design and implementation
of public policies in the borrowing countries by:
(i) increasing the availability of funds, (ii) providing
technical assistance and (iii) implementing policy
reforms based on key performance indicators
(AFD, 2019).
For example, in 2012, Mexico invested in a
USD 72 million policy-based loan, to support
its national biodiversity conservation policies
implemented by the Mexican National Protected
Areas Commission (CONANP). As a result,
in 2016 CONANP implemented a new local
governance mechanism for ecological and
landscape management, which was established
in partnership with the Mexican federal, state,
and local governments.
194
In 2017, Mexico contracted a new PBL to
Catalytic funds
promote ecological and biodiversity conservation
in its rural development policies. The PBL
Investors looking to lower the risk of biodiversity loss to their investment
contributed to the strengthening and alignment
models can channel funding to biodiversity conservation through leveraging
of the Mexican territorial planning policies with
green financial products, or co-investing with governments or multilateral
biodiversity conservation policies (e.g. natural
development institutions in blended finance funds (for example, Agri3 Fund
protected areas). In addition it contributed to the
and Mirova’s Land Degradation Neutrality Fund). Bilateral and multilateral
promotion of sustainable commodity production
organisations can, in some instances, manage such funds, and can offer
practices and reform of policy economic
technical support in the form of project design, monitoring, data collection
instruments (e.g. environmental taxes) aimed
and project management capacity building. Organisations such as the
to reduce their potential negative impacts on
GEF or the Green Climate Fund are valuable for scaling investments in
biodiversity conservation.
biodiversity conservation not only because they provide grant money
or concessional loans, but also because they can connect national
In the future, new policy-based loans in Mexico
conservation strategies with relevant technical support. In addition to
have the potential to support biodiversity
being co-investors, bilateral and multilateral funds can offer concessional
mainstreaming in sectors such as agroecology
capital and guarantees that can encourage further private sector
and sustainable fisheries (AFD, 2020).
investment in conservation.
195
Case study
Land Degradation
Neutrality Fund
Land degradation neutrality (LDN) refers to
a state where land resources are sufficient in
quantity and quality to support an ecosystem’s
functions and services. However, as a
consequence of poor land management for
short-term economic gains, 25% of the world’s
arable land has been lost in the last two decades.
Two billion hectares of land are degraded
worldwide, and another 12 million hectares of
productive land are lost every year. The United
Nations Convention to Combat Desertification
has initiated the Land Degradation Neutrality
Fund, and selected Mirova to structure and
manage it. The two sponsors of the fund are
European Investment Bank and Agence française
de développement. The goal of this investment
fund is to restore productivity to degraded land
to mitigate climate change and improve
livelihoods. Initially, the fund was established
with a 15-year investment time horizon and a
target size of USD 300 million. To achieve this,
the fund primarily invests in sustainable
agriculture and forestry, as well as in other
LDN-related sectors on a case by case basis,
such as green infrastructure or ecotourism.
196
The fund’s structure is based on a blended
finance structure, which leverages public funding
to increase private sector investment. This
concessionary capital takes a junior investor role,
taking a first-loss position in the fund, partially
protecting private investors. Concessionary
capital is often provided by public organisations
such as national development investment
agencies, climate funds or private foundations.
Private investors are typically institutional
investors such as pension funds, insurance
companies and development banks. These
investors require market financial returns
with a low risk profile, which is provided by
the layered structure of the LDN Fund.
In addition, the fund also incorporates a technical
assistance facility managed by IDH Sustainable
Trade Initiative, an international NGO
specialising in making supply chains more
sustainable. The technical assistance facility
aims to maximise positive impacts and reduce
commercial and ESG risks. It provides grants to
support projects seeking investment from the
LDN Fund and is funded by donor contributions
of a target size of 5% of the fund’s size. Current
donors include the French Development Agency
and the GEF.
Learn more investees to strengthen projects’ positive
How technical assistance
environmental and social impacts, for example
by supporting land rights and governance,
can accelerate
strengthening value chains and markets for
‘additional’ products harvested in agroforestry
investments in nature
systems, and working with local governments
to develop policies conducive to positive
biodiversity outcomes. Here, they can also
Supporting public and private blended finance enable and help implement data-based
with technical assistance facilities can approaches that build proof of concept and
significantly increase the flow of capital in allow for adaptive management to be practiced.
support of inclusive sustainable land use and Finally, they can be used to facilitate learning
biodiversity conservation. The number of impact and knowledge sharing on how to mobilise
funds dedicated to nature-based solutions and finance for nature by analysing replicability
sustainable land management has grown in of deals and publishing insights gained
recent years. But before investment capital with investment funds.
can flow, bottlenecks may need to be overcome.
First, conservation projects need to meet the Through these actions, targeted technical
financial and impact objectives of the fund(s). assistance reduces overall investment risk,
Second, project developers who can deliver while ensuring increased numbers of higher
nature-based solutions with positive biodiversity quality projects, and enables larger
outcomes also often need to work with environmental and social impacts related to
a variety of stakeholders, such as local the sustainable land use sector asset class,
governments and communities. Building and through it, biodiversity. With a healthy
stakeholder engagement and partnerships pipeline of larger-scale investment opportunities
takes time. As such, project developers have with transparent features, more investors are
specific financial and technical capacity needs also more likely to be willing and able to increase
that have to be addressed either before or their exposure to natural capital investments.
in parallel with a conservation investment.
To close this gap between investors and
conservation project developers, a TAF can
play a critical role. A TAF is a capacity solution
that encompasses the mobilisation of grants,
advice, and training for potential investees
and key stakeholders. For example, IDH – The
Sustainable Trade Initiative manages three TAFs,
linked to sustainable land use investment funds
which mainly target three outcomes. First, they
aim to enable investment readiness for a bigger
pool of high-impact projects, often enabling
potential investees to strengthen their business
models and their operational and financial
structures, making it possible for the ESG criteria
to be met. Second, they can also work with
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Case study
The AGRI3 Fund
The AGRI3 Fund was created by UNEP and
Rabobank, together with partner IDH and
supported by FMO, the Dutch entrepreneurial
development bank, to mitigate climate change.
It aims to catalyse private financial resources for
forest protection and sustainable agriculture,
with the aim of unlocking at least USD 1 billion in
finance towards deforestation-free, sustainable
agriculture and land use. The fund provides
de-risking financial instruments and grants for
technical assistance for food value chain actors,
and, particularly, farmers. The AGRI3 Fund
is set up to be a role model for banks and other
financial institutions. It was initially funded
by a grant from the Dutch government with
Mirova Natural Capital, FOUNT and Cardano
Development as advisors. IDH manages
a linked technical assistance facility (TAF).
It began operations in mid-2020.
Eligible projects for aid from the AGRI3 Fund
focus on the objectives of forest protection and
reforestation or on sustainable agriculture, and
also contribute to improved rural livelihoods.
The fund targets initiatives and deals that have
long term viability and undertakes transactions
in a wide range and combination of crops,
countries and currencies, maintaining diversity.
The fund is a public-private partnership with
a related layered financing structure where
different instruments (junior, mezzanine and
senior) face different roles and levels of risk, and
where money is contributed by different types of
stakeholders. Donors channel grants towards the
TAF, while investors contribute junior capital to
the Finance Fund. Commercial and development
banks contribute senior debt and mezzanine
capital to the Finance Fund. The ultimate
beneficiaries receive technical assistance and
198
soft loans, while banks and execution partners
receive guarantees and loans of their own.
Commercial debt is provided to either execution
partners or ultimate beneficiaries.
The fund targets a total capital size of USD 150
million to allow for an exposure of its guarantees
up to USD 300 million. This double blending
structure subsequently unlocks investments
made by commercial banks, initially Rabobank,
and aims to increase to up to USD 1 billion in total
finance. Key innovative aspects of the fund are
its partnership with commercial banks, it being
an evergreen fund, its open architecture allowing
future partnerships with commercial banks
beyond Rabobank, and its ability to blend finance
to attract commercial investors to riskier deals.
IDH manages the AGRI3 TAF, providing support
for projects to enable the transactions, reduce
risk and increase development impact. The TAF
provides reimbursable grants to projects both at
the pre- and post-investment stages to improve
technical quality and strengthen environmental
and social impacts. The technical assistance
will also help implementation of a data-based
approach to support impact tracking and
adaptive management and facilitate knowledge
sharing from the AGRI3 Fund. It is expected
that the use of technical assistance for AGRI3
projects ensures reduced risk, increased
numbers of and higher quality projects, larger
environmental and sustainability impacts, and
the growth of a sustainable land use sector as
a new asset class.
Case study The fund’s catalytic investments pipeline may
Joint SDG Fund
subsequently support initiatives that leverage
public and private financing for conservation.
The 28 shortlisted catalytic investment
The UN Joint SDG Fund supports countries to proposals were grouped in five thematic clusters,
accelerate their progress towards the SDGs. two of which are relevant to biodiversity –
It was founded in 2014 and works across the ‘natural ecosystems and climate action’ and
entire UN with 14 separate agencies that ‘blue economy’. For example, proposals in small
implement programmes dedicated to the SDGs. island states will aim to set up facilities for
The fund works toward activating SDG policy project identification, formulation, and financing
changes, enhancing ecosystems for SDG of businesses and infrastructure to preserve
financing, and catalysing SDG investments at critical coral reefs. Other proposals encourage
scale. Thus, the fund closes the financing gap a new set of financial instruments to upscale the
for achieving the SDGs through systemic action use of sukuk and other lending products to fund
in the international community. national park systems. Still others aim to leverage
private investment to support small businesses
The fund operates through open calls for funding. to invest in waste management, and to build
The first call for a total envelope of USD 100 facilities for biogas, green fertilisers and compost.
million of SDG financing closed in March 2020.
The call resulted in the approval of 62 joint
programmes (Component 1 – the enabling
environment for SDG investments) for an
envelope of USD 80 million. Component 2,
catalytic investments, was achieved through
awarding of preparatory funding to 28 concept
notes. The second component is explicitly
focused on investing in initiatives that leverage
additional funding for the SDGs from both public
and private sources. This increases the efficiency
of capital deployment, reducing the total amount
of capital needed to address the SDGs (Joint
SDG Fund n.d.).
Both components will support the quest of
adequately financing biodiversity via SDGs 14
and 15 (Life Below Water and Life on Land).
A new generation of financing strategies and
enabling frameworks for SDG investment will
be crafted – in the form of Integrated National
Financing Frameworks. The basic idea is to
innovate and adapt financing schemes to
the SDGs and replicate and upscale them
by blending public and private resources.
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Learn more
Global Environment
Facility
Established in 1991, the Global Environment
Facility (GEF) is the largest financier of
environmental projects for developed and
developing countries. As of 2018, it has provided
around USD 20.5 billion in grants, mobilised
USD 112 billion in co-financing from governments,
civil society, and other bilateral or multilateral
agencies and supported 4800 projects in 170
countries (GEF 2018a). GEF is the financial
mechanism for major international conventions
on environmental protection, including the
CBD and the UNFCCC (GEF 2018a).
GEF’s unique governance structure provides
institutional capacity to oversee its operations,
channel funding across agencies and provide
technical assistance to recipients of funding.
GEF’s council, its main governing body, evaluates
the facility’s policies and programmes. The
assembly consists of all 183 member countries
and meets every three to four years to review
general policies, operations and membership
(GEF 2018d). GEF’s operations are conducted
through 18 agencies, which work together with
project stakeholders to design and implement
GEF-funded projects (GEF 2018d). Its Scientific
and Technical Advisory Panel and Independent
Evaluation Office provide technical support
regarding policies and operations for funding
recipients and monitor the impact of GEF grants
(GEF 2018d).
During the GEF-7 replenishment meeting,
participants also agreed to a new investment
strategy, which has focused GEF financing on
(a) investments that catalyse change in key
systems driving environmental loss, that is,
energy, cities and food, (b) prioritising projects
that focus on more than one global problem at
200
a time, and (c) strategies that include stronger
Private stakeholder coalitions
engagement with stakeholders, including the
private sector, indigenous peoples and civil
Aligning the private sector and government strategy is facilitated by
society (GEF 2018c). To execute these initiatives,
organisations and initiatives that foster dialogue and collaboration between
GEF distributes funds to developing countries,
conservation project managers and investors such as the Coalition for
or countries that are transitioning to meet
Private Investment in Conservation (CPIC). The Nature+ Accelerator, a
international environmental standards across
collaboration between CPIC, IUCN, Mirova and the GEF selects projects
five main focal areas: biodiversity, climate
to be scaled through rigorous technical assistance (IUCN n.d.). The Nature
change, land degradation, international waters,
Conservancy’s Natural Capital Accelerator programme is another example
and chemicals and waste (GEF 2018c).
of a platform for conservation specialists and investors to engage and
develop innovative solutions (Schwelder 2020). Since 2018, the programme
GEF’s most recent biodiversity focal area
has given USD 2.5 million to nature-based climate projects around the
strategy aims to maintain globally significant
United States.
biodiversity in landscapes and seascapes
through mainstreaming biodiversity across
sectors, addressing drivers of species loss to
protect habitats and species and developing
relevant policy and institutional frameworks
(GEF 2018b). It plans to achieve these goals
through the following key entry points for
investment in recipient countries: biodiversity
mainstreaming in priority sectors, the global
wildlife programme, natural capital assessment
and accounting, sustainable use of plant and
animal genetic resources, inclusive conservation,
food systems, and land use, among others.
GEF-7 has also instituted new monitoring
guidelines that standardise monitoring of
programme results across a series of core and
sub indicators. Core indicators seek to gather
quantitative and qualitative data regarding
the improved marine and terrestrial habitat
management outcomes.
201
Learn more information and creating connections.

Coalition for Private

CPIC investments operate in a series of areas
relevant for the conservation and protection

Investment in
of biodiversity, and CPIC has developed
blueprints in a number of fields to illustrate how

Conservation (CPIC)
The Coalition for Private Investment in
Conservation (CPIC) came together to develop
sustainable products with reasonable risk-return
profiles. Prior work done on the subject of
conservation investing, in particular the 2014
report released by Credit Suisse, WWF and
McKinsey & Co., demonstrated that there was
an untapped market for investors looking to
invest in conservation-oriented financial products
that provided significant returns. However, there
was no central organisation dedicated to the
development and fostering of sustainable
financial products focused on conservation.
To that end, CPIC was founded in 2016 by
Cornell, Credit Suisse, IUCN and The Nature
Conservancy. It now has approximately 80
partner organisations, including Mirova,
Conservation International and WWF, spanning
the conservation space, with partners that are
international agencies, NGOs and impact and
sustainable investing institutions (CPIC n.d.).
new conservation investments can be created
and scaled. One example of this is the Forest
Resilience Bond (FRB), the first of which was
created by Blue Forest Conservation (CPIC n.d.).
CPIC’s blueprint describes where and why a FRB
would work and how organisations might follow
in Blue Forest’s footsteps. Other examples
of CPIC’s blueprints include a description of
a public-private partnership for marine protected
areas, a description of the restoration and
renovation of smallholder cocoa farms,
and environmental impact bonds for green
infrastructure and watersheds. CPIC has
garnered significant support and recognition
since its founding, and has received USD 10
million of committed funding from GEF, the
Rockefeller Foundation and Cornell to support
the development of these products.

The goal of CPIC is to be both a repository of

knowledge and an engagement platform to
encourage private investment in conservation
by facilitating the development of conservation
investment products that investors can purchase
or invest in. CPIC works towards this goal in
a number of ways. First, CPIC creates blueprints
for how to create, deliver and scale investable
conservation projects. Second, CPIC brings
together the investors, financial structuring
experts and conservation experts necessary
to create and implement innovative financial
products. Finally, CPIC also works to accelerate
the shift from concepts to investable products
by acting as a network for both amplifying

202 203
 Where do we
go from here?

9
204 205
 Where do we go from here?
The twin crises of biodiversity loss and climate change are among the
most significant challenges facing our species today. In some ways the
biodiversity crisis is the more intractable – in the area of climate change
there is, if nothing else, a universal metric (tonnes of CO2 equivalent)
that facilitates communication and provides a common language for
negotiators. Still, there is tremendous enthusiasm, particularly among
the younger generations, for combining economic development with
sustainability. The biggest challenge now is simply how to finance it.

Given the growing body of evidence that shows that the long term cost of
conserving biodiversity is likely to be much higher than what governments
will be able to afford in the coming years, it would be easy to despair.
However, the private sector is able to deploy capital into novel solutions in
much larger amounts than the public sector is – and, crucially, the amount
of new and reinvested capital that moves through investment markets
every year is vastly larger than the cost of addressing the biodiversity crisis.
This suggests a possible solution to the biodiversity crisis that is funded
in large part by private investments that deliver both financial returns and
biodiversity co-benefits.

It is not clear whether the COVID-19 pandemic, and the accompanying

global economic downturn, will make that vision more difficult to fulfil.
Despite more than USD 10 trillion in government policy stimulus and
recovery measures announced in 2020, biodiversity conservation has,
in most cases, not been central to COVID-19 policy responses (OECD 2020;
Finance for Biodiversity 2020). While some governments have slashed
funding for protected areas or conservation programmes, a few others have
embraced a ‘green stimulus recovery’, although these are mostly focused
on addressing climate change risks. What those economic stimulus plans
will look like once they have been developed further in still unclear. But the
fact that zoonotic diseases like COVID-19 result at least in part from our
mismanagement of biodiversity strongly supports the economic case for
conservation—and policymakers need to bear this in mind as they develop
their COVID-19 economic recovery plans and implement initiatives to not
only strengthen their economies but, also, to prevent the next pandemic.

There is, at the time of writing, a growing call for integrating biodiversity
conservation into COVID-19 recovery plans to ensure that economies are
more resilient to systemic shocks and to prevent future pandemics (OECD
2020). And there is a growing realisation that nature must be conserved not
only for its intrinsic value but also for far more prosaic reasons: every nation
is built upon its natural capital and relies on ecosystem services for its food,
air, climate, and water quality, among others.

206 207
 To this extent, conservation can look to integrate financial and non-financial
funding opportunities into current plans. The real market benefits from an
established ability to regulate and deploy capital, as well as a combination
of regulatory, corporate and strategic financial mechanisms that exist to
ensure that capital can reach a desired asset. Similar to traditional assets,
there are now a range of mechanisms and financial actors that have created
ecosystems to fund social innovations, such as solutions to affordable
housing, or renewable energy transitions. The goal moving forward is to
assess how these systems have been put in place to achieve sustainable
funding for these causes, and to apply them to biodiversity.
The tools mentioned in this book should therefore be complemented
by financial and regulatory structures that mainstream biodiversity
conservation into investment and policymaking processes. In doing
so, each sector of society can contribute towards building a financial
ecosystem, where each institution and actor understands their distinct
roles, and commits to them to ensure consistent funding for nature.
As the need for an alternative economic development path that is truly
sustainable becomes clearer, so too does the need for collaboration
amongst the public, private and civil society sectors. Such collaboration
should result in a financial ecosystem that considers impacts on biodiversity
alongside metrics of risk and return, and that is populated by a series of
institutions for which non-financial returns and long-term impacts of their
business activity are defining features.
If the international community is to move towards this sustainable financial
ecosystem, in which the whole is greater than the sum of its parts,
substantial progress will be needed on the following eight transformations:
1. Risk assessments and disclosures: The public and private sector will
understand and quantify their respective exposures to risks associated
with biodiversity loss and the negative impacts associated with their
activities and operations. This will include improvements in disclosure,
tracking, and reporting of biodiversity finance. The Taskforce for
Nature-related Financial Disclosures (TNFD) provides a framework
that governments and firms can use to produce disclose their
nature-related risks.
2. Metrics of investment impact: In addition to understanding the
financial returns, of a transaction or project, it is crucially important
that the area of biodiversity finance development is clear and uses
broadly applicable metrics of non-financial impacts, which are
associated with particular investments.
3. Finalisation of NBSAPs and NBFP: National governments will develop
National Biodiversity Strategies and Plans (NBSAPs) and National
Biodiversity Finance Plans (NBFPs), in line with funding needs.
208
4. Harmful subsidies reform: Governments will transition existing
policies that negatively impact biodiversity by addressing and
reforming agricultural, fisheries, forestry and fossil fuel subsidies
that are harmful to biodiversity.
5. Sustainable supply chain transitions and investment risk
management: Private institutions will have policies in place to
support sustainable commodity production and reform their supply
chains and investment practices in accordance with science-based
targets. Investors will understand the impacts of their investments
and lending decisions and will incorporate that information into
the choices they make.
6. Capacity building and financial support: Where needed,
international and national organisations will continue to support
countries as they transition to more sustainable economies, through
offering technical assistance in the drafting of key policies, training for
the implementation of, and monitoring and reporting on conservation
programmes. Development institutions will partner with governments
and the private sector to develop concessional finance or blended
finance funds to help increase local capacity.
7. Reform of laws and regulations discouraging ESG investments:
National and international organisations that regulate investment
practices will reassess, and where relevant, reform laws and
regulations that discourage investors from making triple-bottom-line
investments. This will involve moving towards a broader definition
of fiduciary duty that incorporates an understanding of the long-term
collateral environmental and social benefits or harm associated with
certain investments.
8. Alignment of investment portfolios with individual and
institutional values: Investment managers will conform portfolios
to changing values that reflect clients‘ demand for preventing the
loss of nature. In alignment with reforms of laws and regulations that
better enable ESG investments, investors will develop assets that
allow clients to realise returns for their portfolios, while minimising
harm to biodiversity or generating revenues from conservation. Private
lending and equity investments in new technologies for biodiversity
conservation project design, monitoring, evaluation, and investment
management (for example, satellite imaging, machine learning, and
investment assurance for nature-based solutions) will play a catalytic
role in delivering better biodiversity finance.
In order to appropriately respond to the risks posed by global biodiversity
loss, the public and private sector must first understand the risks to which
they are exposed, and the measures that must be taken to minimise or
eradicate them. The public sector should take stock of each economic
sector’s dependency on biodiversity, and potential economic losses that
might result from ecosystem degradation. Governments must also identify
209
 barriers to their achievement of biodiversity protection targets and ways
in which international and civil society can help overcome these barriers.
The private sector will need to assume the responsibility of addressing its
existing business operations by transforming supply chains, addressing
investment practices that are negative for biodiversity, introducing risk
mitigation tools that enable better delivery of funds to biodiversity,
and creating new funding structures that realise long-term business
opportunities related to biodiversity conservation. These actions
should be taken in collaboration with governments.

Growing this financial ecosystem will require simultaneous bottom-up and

top-down transformations. While governments and the private sector will
need to change their current practices at national and subnational levels,
national and international civil society organisations will continue to play
a vital role in enabling further investment in conservation. This will include
bolstering technical and policy capacity, supporting implementation
processes and citizen outreach, and helping local private and public actors
to ensure that funds reach their desired destinations.

Achieving national biodiversity goals will not only require transitions for
economic gain and environmental health. Governments, the private sector
and civil society organisations will also need to consider ways in which
mainstreaming biodiversity can address inequities. A sustainable financial
system should also improve communities’ access to clean air and healthy
food, and, in the case of indigenous communities, empower them to
manage their land in a manner consistent with biodiversity conservation.

210 211
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